An International Monetary Fund (IMF) team led by Ricardo Velloso visited
Luanda from March 1-15, 2018, to conduct discussions for the 2018 Article
IV consultation. At the conclusion of the mission, Mr. Velloso issued the
following statement:
“The Angolan economy is experiencing a mild economic recovery. The new
administration is rightly focused on restoring macroeconomic stability and
improving governance. Also, the more benign outlook for oil prices opens a
window of opportunity to strengthen macroeconomic policies and give new
impetus to structural reforms, allowing Angola to realize its full
potential.
“In 2018, output growth is projected to accelerate to 2¼ percent, compared
to 1 percent last year, driven by a more efficient foreign exchange
allocation system and additional availability of foreign exchange due to
higher oil prices; LNG production inching up to full capacity; and improved
business sentiment. Annual inflation is projected to remain high, reaching
24¾ percent by end-year reflecting, inter alia, the effect of the kwanza
depreciation. Over the medium term, the outlook is for a continued gradual
recovery in economic activity, but there are risks, including a decline in
oil prices and slippages in the implementation of the needed structural
reforms to promote economic diversification.
“Fiscal policy was loosened last year, and the overall fiscal deficit
widened to about 6 percent of GDP in 2017, while public debt, including the
debt of Sonangol and TAAG, reached 64 percent of GDP. The recently-approved
budget for 2018 appropriately aims at a significant fiscal retrenchment,
reducing the deficit to 3½ percent of GDP under a conservative oil price
assumption. Higher oil prices than envisaged in the budget would result in
a revenue windfall that should be used to clear domestic payments arrears
faster and/or retire public debt. Gross financing needs in 2018 are
substantial, but appear manageable in the current favorable external
environment. Gradual fiscal consolidation over the medium term will be
needed to put public debt, as a share of GDP, on a clear downward path.
“The authorities’ objective of lowering public debt to under 60 percent of
GDP over the medium term provides an adequate fiscal anchor. This objective
would be consistent with a non-oil primary fiscal consolidation path
averaging ¾ percent of GDP annually until 2023. This fiscal effort would be
achieved by ongoing efforts to enlarge the tax base, including by
introducing a VAT on January 1, 2019, as planned; and rationalizing public
spending. These fiscal consolidation efforts should be complemented by
containing contingent liability risks; improving the quality of public
investment; adjusting domestic fuel prices to reflect changes in
international fuel prices and the exchange rate; expanding well-targeted
social programs to protect the most vulnerable and reduce poverty; and
implementing a medium-term fiscal framework, focusing on a well-designed
fiscal stabilization fund to reduce procyclicality of spending.
“Downsizing the public corporate sector in important to reduce their burden
on the Treasury and increase economic efficiency. Insolvent state-owned
enterprises should be closed; and economically viable but inefficient SOEs
should be restructured and/or privatized. In this connection, Sonangol’s
restructuring should make it leaner, more efficient, and focused on its
core businesses.
“The National Bank of Angola (BNA) has appropriately tightened monetary
policy to support the new exchange rate regime and, so far, the
pass-through of the depreciation to inflation appears to have been
contained. The parallel-official exchange rate spread has been
significantly reduced, but remains wide reflecting short-term pressures in
the foreign exchange market as a backlog of foreign exchange purchase
orders is gradually eliminated. Completing the transition to a fully
functioning foreign exchange market will require further reforms to the
foreign exchange allocation mechanism, including phasing out direct sales.
“The banks’ balance sheets need to be strengthened to help with economic
recovery and foster inclusive growth. Central to this objective is raising
the efficiency of the state-owned banks, by fully implementing their
restructuring plans. In the case of BPC, restructuring efforts should be
accelerated, and further recapitalization should be made conditional on
demonstrable actions that the restructuring plan approved in early 2017 is
on track.
“Implementation of structural reforms is critical to tackle impediments to
economic diversification and growth. Achieving these objectives requires
addressing: (i) the weak insolvency processes, protection of minority
shareholders, and contract enforcement; (ii) the still limited access to
finance; (iii) the large footprint of the State in the economy; and (iv)
governance issues. The Law on Competition and the Private Investment Law
under consideration in the National Assembly are welcome steps in the right
direction of improving the business climate and fostering the private
sector.
“The mission met with Minister of State for Economic and Social Development
Manuel Nunes Júnior, Finance Minister Archer Mangueira, Economy and
Planning Minister Pedro da Fonseca, Commerce Minister Joffre Van-Dúnem
Júnior, Public Administration and Social Security Minister Jesus Faria
Maiato, National Bank of Angola (BNA) Governor José Massano, and other
senior officials of the executive branch. The mission also held discussions
with members of the Economic and Finance Committee of the National
Assembly, and representatives from the financial sector, the non-financial
private sector, the state-owned oil company Sonangol, the sovereign wealth
fund, the diplomatic and IFI community, and non-governmental organizations.
“We thank the authorities for their hospitality and constructive dialogue.”
The IMF Executive Board is expected to discuss the 2018 Article IV
Consultation in May 2018.
