IMF Executive Board Concludes 2016 Article IV Consultation with Angola
IMF News, January 24, 2017
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- Published: January 24, 2017
Summary of recent developments
- On January 23, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Angola.
- The oil price shock that started in mid-2014 has substantially reduced fiscal revenue and exports; growth was estimated to come to a halt in 2016.
- The non-oil sector contracted by ½ percent, dragged down by the industrial, construction, and services sectors.
- Annual inflation was estimated to reach 45 percent by end 2016—the highest rate in over a decade—reflecting higher domestic fuel prices, a weaker kwanza, and the lagged effects of loose monetary conditions until the first half of the year.
- Non-oil primary balance in 2015-16 showed an improvement of 18 percent of GDP mainly through spending rationalization.
- The current account deficit, which peaked at 10 percent of GDP in 2015, is projected to be halved in 2016-17, as imports continue adjusting to limited availability of foreign exchange.
- International reserves are declining but remain relatively comfortable; a wide spread between the parallel and primary market exchange rates remains, pointing to a significant imbalance in the foreign exchange market.
Executive Board assessment and policy guidance
- Directors commended the authorities for steps taken to mitigate the shock but urged further measures to stabilize macroeconomic conditions and diversify the economy away from oil dependence.
- Fiscal policy
- Welcomed the significant non-oil primary fiscal consolidation to date, but stressed continued fiscal adjustment is needed to put public debt on a clear downward path while supporting medium-term growth.
- Urged concerted efforts to contain the growth of the wage bill.
- Recommended improving the quality of public investment.
- Advised continuing to streamline subsidies while expanding well-targeted social assistance for the poor.
- Emphasized strengthening nonoil revenue, including by implementing a VAT in due course.
- Emphasized clearing domestic payments arrears and welcomed plans to restructure state-owned enterprises.
- Noted that adopting a medium-term fiscal framework would help reduce pro-cyclicality of public spending and improve investment planning.
- Monetary and exchange rate policy
- Underscored that monetary and exchange rate policies should play a central role in rebalancing the foreign exchange market.
- Welcomed recent measures taken by the central bank to tighten liquidity conditions, but saw a need to enhance the monetary policy framework to better anchor inflation expectations and facilitate a transition to greater exchange rate flexibility.
- Stressed that a more flexible exchange rate coupled with supportive monetary and fiscal policies will be crucial in addressing foreign exchange market imbalances while containing inflation.
- Urged the phased elimination of the exchange restrictions and multiple currency practices.
- Financial sector and correspondent banking
- Emphasized the need to preserve the health of the banking sector.
- Supported authorities’ efforts to strengthen bank supervision and resolution frameworks.
- Recommended conducting rigorous asset quality reviews, and welcomed actions to ensure that weaker banks are recapitalized.
- Noted the plan to restructure and recapitalize the systemically-important state-owned BPC bank is an important step.
- Stressed the need to address the effects of the loss of U.S. dollar correspondent banking relationships (CBRs).
- Welcomed high-level dialogue with home authorities of global correspondent banks; recommended the central bank step up data collection and analysis, develop contingency plans to mitigate risks from the loss of CBRs, and further strengthen prudential and AML/CFT frameworks.
- Structural reforms and governance
- Welcomed the authorities’ reform agenda to tackle constraints to economic diversification, including infrastructure and human capital development.
- Emphasized these measures should be complemented by enhancing the business environment and strengthening governance, including efforts to address corruption-related risks, to foster private investment and inclusive growth.
- Data and statistics
- Encouraged the authorities to address remaining gaps in the production of economic data.
Key quantitative indicators (selected)
- Real gross domestic product: 0.0 percent (2016, estimated); 1.3 percent (2017, projected).
- Non-oil sector: -½ percent (2016, contraction).
- Annual inflation (end of period): 45.0 percent (end 2016, estimated); 20.0 percent (end 2017, projected).
- Non-oil primary fiscal balance: improvement of 18 percent of GDP in 2015-16.
- Current account balance: peak deficit of 10 percent of GDP in 2015; projected to be halved in 2016-17.
- Gross international reserves (end of period, millions of U.S. dollars): 24,419 (2015); 22,448 (2016); 19,433 (2017, projected).
- Net international reserves (end of period, millions of U.S. dollars): 24,266 (2015); 20,416 (2016); 17,416 (2017, projected).
- Official exchange rate (end of period, kwanzas per U.S. dollar): 135.3 (2015).
- Total public sector debt (gross): 65.4 percent of GDP (2015); 71.6 percent of GDP (2016); 62.8 percent of GDP (2017, projected).
- Oil production (millions of barrels per day): 1.780 (2015); 1.789 (2016); 1.821 (2017, projected).
- Angola oil price (average, U.S. dollars per barrel): 50.0 (2015); 46.0 (2016); 47.9 (crude oil average three spot prices, referenced).
- Exports of goods, f.o.b. (percent of GDP): 32.2 (2015); 26.1 (2016).
- Imports of goods, f.o.b. (percent of GDP): 20.1 (2015); 14.6 (2016).
IMF Press Release: IMF Executive Board Concludes 2016 Article IV Consultation with Angola, January 24, 2017.