IMF Executive Board Concludes First Post Financing Assessment Discussions with Angola
IMF News, September 5, 2023
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- Published: September 5, 2023
Context and recent developments
- Successful reforms coupled by firmed oil prices supported Angola’s economic recovery in 2021–22, however, declined oil production has led to significant challenges to the economy.
- Towards the end of 2022 and the first half of 2023, the oil sector weakened due to the extension of temporary maintenance operations.
- With declines of both oil prices and production in the first half of 2023, exports and oil revenues declined, resulting in a weakness in the fiscal and external sectors, and a significant depreciation in the nominal exchange rate in June 2023.
- Following the strong nominal exchange rate depreciation and the partial removal of fuel subsidies, inflation increased in June, to 11.3 percent (from 10.6 percent); for the first time in 15 consecutive months; whereby the BNA (Banco Nacional de Angola) responded by tightening liquidity conditions.
- On August 29, 2023, the Executive Board concluded the Post Financing Assessment (PFA) and endorsed the Staff Appraisal on a lapse-of-time basis.
Executive Board assessment summary
- Angola’s capacity to repay the Fund is adequate, despite elevated risks.
- Angola’s economic recovery in the near term remains dependent on the oil sector and is largely dependent on the materialization of the diversification plans in the medium term.
- Despite the weaker outturns for oil production in 2023 H1, growth momentum is expected to continue once temporary maintenance operations are complete.
- Risks to the outlook remain high, given the continued high reliance on the oil sector; the medium term is largely dependent on the recovery of the non-oil sector and the authorities’ progress with the diversification plan.
- Under the baseline, projected repayments to the Fund will increase over the medium term but would peak in 2026 at broadly comfortable levels.
- Under a significant and prolonged shock scenario, the projected capacity to repay indicators would remain manageable.
- Steps to mitigate shocks include allowing the exchange rate to function as a shock absorber and rationalization of some expenditure.
Growth, inflation, and outlook
- Growth is expected to slow down to 0.9 percent in 2023, before stabilizing at around 3.4 percent in the medium term, aided by the authorities’ structural reform and diversification agenda.
- Inflation is expected to increase temporarily in 2023/24 due to higher energy prices related to the fuel subsidy reform, and to ease thereafter.
- Downside risks to the outlook include a larger-than-expected decline in global oil prices, continued weakness of oil production and failure to fully implement the planned fuel subsidy reform in 2024.
Fiscal policy and public finances
- A moderate fiscal adjustment is expected in 2023, in line with the budget, with a more significant adjustment expected in 2024 with the planned fuel subsidy reform.
- Although the near-term fiscal outlook has worsened since the Article IV, the authorities would reach their medium-term fiscal targets under the baseline with a full implementation of their subsidy reform.
- Fiscal slippage has reduced buffers and a sustained adjustment is required to mitigate risks.
- The authorities should continue to act swiftly to reverse the large fiscal slippage of 2022.
- Critical actions:
- Fully implement the subsidy reform announced on June 1, with mitigation measures to support the vulnerable population.
- Pursue tax policy measures to mobilize non-oil domestic revenue.
- Make further progress on fiscal structural agenda, including public financial management and public investment management reforms.
Financial sector stability
- Continued efforts are needed to bolster financial stability.
- Ongoing prudential reforms should continue to improve banking sector oversight and health.
- To safeguard market confidence and reduce contingent fiscal risks, the DGF needs to strengthen its financial and operational capacity.
- The BNA should prepare for the decisive resolution or liquidation of problem banks, as necessary, while protecting only small depositors.
Structural reforms and diversification
- Maintaining focus on medium-term structural reforms is critical to maintaining growth in the context of a declining oil production.
- Lessening dependence on the oil sector is critical and should remain the authorities’ medium-term focus.
- Continued efforts are needed to strengthen governance, improve the business environment, and promote private investment, guided by the authorities’ diversification plans and the new National Development Plan (2023–27).
Key economic indicators (selected, 2022–24)
- Real gross domestic product: 3.0 (2022), 0.9 (2023 Proj.), 3.1 (2024 Proj.)
- Oil sector (real percent change): 0.5 (2022), -6.1 (2023 Proj.), — (2024 value shown as 1.234 in oil production section)
- Non-oil sector (real percent change): 4.2 (2022), 3.4 (2023 Proj.), 3.8 (2024 Proj.)
- Nominal gross domestic product (GDP): 20.1 (2022), 12.5 (2023 Proj.), 27.0 (2024 Proj.)
- GDP deflator: 16.6 (2022), 11.5 (2023 Proj.), 23.2 (2024 Proj.)
- Non-oil GDP deflator: 21.4 (2022), 14.6 (2023 Proj.), 22.3 (2024 Proj.)
- Consumer prices (annual average): 13.8 (2022), 18.8 (2023 Proj.), 25.6 (2024 Proj.)
- Gross domestic product (billions of kwanzas): 56,778 (2022), 63,851 (2023 Proj.), 81,078 (2024 Proj.)
- Oil GDP (billions of kwanzas): 15,330 (2022), 14,732 (2023 Proj.), 18,687 (2024 Proj.)
- Non-oil GDP (billions of kwanzas): 41,447 (2022), 49,119 (2023 Proj.), 62,391 (2024 Proj.)
- Gross domestic product (billions of U.S. dollars): 122.8 (2022), 96.9 (2023 Proj.), 94.6 (2024 Proj.)
- GDP per capita (U.S. dollars): 3,438 (2022), 2,635 (2023 Proj.), 2,497 (2024 Proj.)
- Total revenue (central government, percent of GDP): 21.8 (2022), 21.5 (2023 Proj.), — (2024 entry present)
- Of which: Oil-related revenue (percent of GDP): 13.6 (2022), 11.8 (2023 Proj.), 11.3 (2024 Proj.)
- Of which: Non-oil tax (percent of GDP): 7.9 (2022), 7.8 (2023 Proj.), — (2024 entry present)
- Total expenditure (percent of GDP): 22.5 (2022), 23.9 (2023 Proj.), 20.7 (2024 Proj.)
- Current expenditure (percent of GDP): 16.4 (2022), 19.0 (2023 Proj.), 16.5 (2024 Proj.)
- Capital spending (percent of GDP): 6.1 (2022), 4.9 (2023 Proj.), — (2024 entry present)
- Overall fiscal balance (percent of GDP): 0.7 (2022), -2.1 (2023 Proj.), 0.8 (2024 Proj.)
- Non-oil primary fiscal balance: -8.5 (2022), -8.3 (2023 Proj.), -5.4 (2024 Proj.)
- Non-oil primary fiscal balance (percent of non-oil GDP): -11.6 (2022), -10.8 (2023 Proj.), -7.0 (2024 Proj.)
- Broad money (M2, end of period percent change): -1.4 (2022), 24.7 (2023 Proj.)
- Broad money (percent of GDP): 20.0 (2022), 19.6 (2023 Proj.)
- Velocity (GDP/M2): 5.0 (2022), 5.1 (2023 Proj.)
- Velocity (non-oil GDP/M2): 3.6 (2022), 3.9 (2023 Proj.)
- Credit to the private sector (annual percent change): -4.8 (2022), 6.3 (2023 Proj.)
- Trade balance (percent of GDP): 26.7 (2022), 21.7 (2023 Proj.), 22.2 (2024 Proj.)
- Exports of goods, f.o.b. (percent of GDP): 40.8 (2022), 36.2 (2023 Proj.), 36.4 (2024 Proj.)
- Of which: Oil and gas exports (percent of GDP): 38.7 (2022), 33.5 (2023 Proj.), 33.3 (2024 Proj.)
- Imports of goods, f.o.b. (percent of GDP): 14.1 (2022), 14.5 (2023 Proj.), 14.2 (2024 Proj.)
- Terms of trade (percent change): 35.6 (2022), -27.0 (2023 Proj.), -6.0 (2024 Proj.)
- Current account balance (percent of GDP): 9.6 (2022), 2.3 (2023 Proj.), 3.2 (2024 Proj.)
- Gross international reserves (end of period, millions of U.S. dollars): 14,661 (2022), 13,701 (2023 Proj.), 14,034 (2024 Proj.)
- Gross international reserves (months of next year's imports): 7.2 (2022), 7.1 (2023 Proj.), 7.0 (2024 Proj.)
- Official exchange rate (average, kwanzas per U.S. dollar): 462 (2022), …
- Official exchange rate (end of period, kwanzas per U.S. dollar): 504 (2022 entry shown)
- Public sector debt (gross, percent of GDP): 65.2 (2022), 83.2 (2023 Proj.), 75.6 (2024 Proj.)
- Of which: Central Government debt (percent of GDP): 60.8 (2022), 77.1 (2023 Proj.), 71.7 (2024 Proj.)
- Oil and gas production (millions of barrels per day): 1.250 (2022), 1.206 (2023 Proj.), 1.234 (2024 Proj.)
- Oil and gas exports (billions of U.S. dollars): 47.5 (2022), 32.5 (2023 Proj.), 31.5 (2024 Proj.)
- Angola oil price (average, U.S. dollars per barrel): 100.3 (2022), 76.7 (2023 Proj.), 72.1 (2024 Proj.)
- Brent oil price (average, U.S. dollars per barrel): 99.0 (2022), 78.4 (2023 Proj.), 73.6 (2024 Proj.)
Source: IMF Executive Board press release, "IMF Executive Board Concludes First Post Financing Assessment Discussions with Angola", September 5, 2023.