Press Release No. 09/425

Press Release No. 09/425
November 23, 2009

The Executive Board of the International Monetary Fund (IMF) today approved a 27-month Stand-By Arrangement (SBA) with Angola in the amount of SDR 858.9 million (about US$1.4 billion) to help the country cope with the effects of the global economic crisis.

The IMF-supported economic program approved aims to restore macroeconomic balances and rebuild international reserves. While the immediate goal is to mitigate the repercussions of the adverse terms of trade shocks linked to the global crisis, the program also includes a reform agenda aimed at medium-term structural issues to foster the non-oil sector growth.

The key pillars of the program are: i) a determined fiscal effort that aims to reduce the non-oil primary fiscal deficit significantly in 2010 and that still provides adequate resources for social spending and vital infrastructure projects; ii) an orderly exchange rate adjustment backed by tight monetary policy to normalize conditions in the foreign exchange market; and iii) measures to safeguard the financial sector.

Preserving an adequate level of social spending and infrastructure investment was a key concern of the authorities in designing their program objectives. The SBA provides space for 30% of total central government expenditures on social issues over the duration of the program. In terms of capital spending, the authorities’ fiscal program also provides adequate resources for vital infrastructure projects in 2010.

Angola has suffered a significant terms of trade shock because of the sharp drop in oil prices. The global crisis hit the country during a period of rapid expansion and strong pro-cyclical policies, fueled by oil revenues. The subsequent large drop in oil revenues caused a sharp slowdown in the economy, weakening of fiscal and external positions, depreciation of the exchange rate, and a rise in inflation.

Following the Executive Board’s approval of the arrangement with Angola, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, issued the following statement:

“The Angolan authorities are to be commended for their strong commitment to a comprehensive reform program that addresses the macroeconomic imbalances which emerged in the face of the global economic crisis.

“The program includes a determined effort to restrain public expenditures, while providing adequate resources for social spending and vital infrastructure projects. To ensure adherence to the fiscal program, the authorities are advised to conduct a mid-year review of budget developments and make adjustments if necessary. A cautious external borrowing strategy is also important to ensure that the debt burden remains at manageable levels. The authorities’ intention to enhance fiscal transparency, especially in the oil sector, is welcome.

“The authorities are committed to take further steps to improve fiscal management over the medium-term, increase non-oil revenues by reforming the tax system, and de-link the fiscal stance from short-term movements in oil revenues. In this regard, their plan to establish a Sovereign Wealth Fund is welcome.

“The resumption of foreign exchange auctions by the National Bank of Angola (BNA) has already contributed to normalize conditions in the foreign exchange market. It is essential to maintain the auction system, backed by tight monetary conditions, and to accept further movements of the exchange rate.

“Angola’s financial soundness indicators appear to be at comfortable levels. Nevertheless, continued vigilance is needed, and measures will be taken to strengthen further the regulatory and supervisory framework,” Mr. Kato said.

ANNEX

Recent Economic Developments

Prior to the onset of the global economic crisis, Angola had recorded an extended period of rapid expansion, fueled by strong growth of oil revenues. However, inflation had persisted at low double-digit levels, and fiscal policy had been strongly pro-cyclical, with the non-oil fiscal deficit increasing from 50 percent of non-oil GDP in 2006 to about 70 percent by 2008. By the time the crisis hit, expansionary fiscal and monetary policies, and more recently an overvalued exchange rate, had left Angola vulnerable. With oil revenues plunging, investor confidence declining, and heavy intervention by the National Bank of Angola to sustain a tightly managed exchange rate, official reserves fell by one-third in the first half of 2009.

The global economic crisis and the resulting sharp drop of commodity prices have severely affected Angola’s economy. The spot price for crude oil fell from an average of US$97 a barrel in 2008 to US$44 in the first quarter of 2009, while OPEC cut its oil production quotas in response, reducing Angola’s quota by about 20 percent. Prices for diamonds, of which Angola is the world’s fourth largest producer, also fell substantially. With the sharp drop in oil prices and revenues, the economy has slowed sharply, fiscal and external positions have weakened considerably, the exchange rate has depreciated, and inflation has risen slightly:

• • Real GDP is projected to be broadly flat in 2009, reflecting a sizeable drop in oil production (-6 percent) and a sharp slowdown in the pace of non-oil growth (to 6 ¾ percent, down from 19 percent its average during 2005–08).

  • The plunge in oil revenues in the first half of 2009 has shifted the fiscal and external surpluses to substantial deficits. As a result, through June 2009, usable reserves fell by US$6 billion to US$10 billion (2¾ months of imports or a ratio of 1 to short-term liabilities).

  • The official exchange rate has depreciated in two distinct stages (by 4 percent during the second quarter and then again by 10 percent in recent weeks, following the restoration of the foreign exchange auction), while the parallel rate has depreciated sharply, reaching a peak 25 percent premium vis-à-vis the official rate by end-September.

  • Inflation has picked up to 14 percent in the 12 months through August, from an average level of 12.5 percent in 2008, despite the economic slowdown.

Angola, which joined the IMF in September 19, 1989, has a Fund quota of SDR 286.3 million.

Angola: Selected Economic and Financial Indicators,
2006–14

	2006	2007	2008	2009	2010	2011	2012	2013	2014
		Est.	Prel.	Proj.
	(Percentage change, except where indicated)
National income and prices
Real GDP	18.6	20.3	13.2	-0.4	7.1	8.3	6.3	6.3	5.8
Oil sector	13.1	20.4	11.9	-5.8	6.1	6.1	2.6	2.7	1.4
Non-oil sector	27.5	20.1	14.8	6.7	7.7	10.0	9.0	8.7	8.5
GDP per capita (U.S. dollars)	2,847	3,629	5,054	3,964	4,688	5,293	5,747	6,327	6,675
GNDI per capita (U.S. dollars)	2,489	3,078	4,179	3,377	4,162	4,637	5,286	5,919	6,360
Consumer price index (annual average)	13.3	12.2	12.5	14.0	15.0	9.8	8.7	7.5	6.0
Consumer price index (end of period)	12.2	11.8	13.2	14.0	13.0	9.5	8.0	7.0	7.0
External sector
Exports, f.o.b. (based on U.S. dollar values)	32.2	39.3	44.0	-43.6	34.9	11.0	5.0	2.2	-1.1
Oil	33.4	41.1	45.2	-44.9	35.9	10.9	4.9	2.0	-1.7
Non-oil	9.9	1.0	4.6	10.4	13.7	13.1	7.0	8.7	11.9
Imports, f.o.b. (based on U.S. dollar values)	5.1	55.6	53.6	-21.3	25.2	5.5	3.8	1.9	3.1
Terms of trade	20.4	4.8	26.5	-41.1	25.2	2.8	1.6	1.4	1.4
Nominal effective exchange rate (average)	-3.2	-0.1	12.0	...	...	...	...	...	...
Real effective exchange rate 1	6.4	8.1	22.0	...	...	...	...	...	...
Money and credit (end of period)
Net domestic assets 2	-48	35	50	40	10	4	...	...	...
Broad money 2	60	49	93	20	20	20	18	17	17
Interest rate (90-day central bank bills; percent)	6	15	15	...	...	...	…	…	…
M2 velocity (non-oil GDP/average M2)	3.0	2.7	2.4	1.9	1.8	1.8	1.8	1.8	1.8
Base money in real terms (percent change)	-9.9	44.1	42.6	33.0	10.6	10.4	9.9	9.9	9.9
	(Percentage of GDP, except where indicated)
Fiscal accounts
Total revenues	46.4	46.7	50.5	35.5	38.6	37.6	41.1	41.8	40.9
Of which: oil	37.2	37.9	40.8	26.5	29.6	28.1	30.9	30.9	29.4
grants	0.0	0.0	0.0	0.0	0.0	0.1	0.1	0.1	0.1
Total expenditures	31.6	35.2	41.6	43.0	37.1	34.4	34.1	32.3	31.4
Overall balance (accrual basis)	14.8	11.5	8.8	-7.5	1.5	3.2	7.0	9.5	9.6
Non-oil fiscal balance (accrual basis)	-22.4	-26.4	-33.3	-34.0	-28.0	-25.1	-24.0	-21.5	-19.9
Non-oil primary fiscal balance (percent of non-oil GDP)	-50.3	-57.2	-70.8	-53.0	-46.8	-40.7	-37.6	-33.3	-30.2
Overall balance (cash basis)	6.6	14.5	14.2	-4.7	-1.7	2.6	7.0	9.5	9.6
External sector
Current account balance (including transfers; deficit -)	25.2	15.9	7.5	-3.5	2.0	1.7	5.1	5.1	5.1
External debt (billions of U.S. dollars)	7.4	9.6	13.5	15.6	16.7	17.8	20.6	23.7	26.8
External debt-to-GDP ratio	16.4	16.2	15.9	22.8	20.0	18.3	18.9	20.2	22.0
Debt service-to-net-export ratio 3	8.7	9.5	4.3	12.3	12.0	11.9	8.4	8.6	9.6
	(Millions of U.S. dollars, except where indicated)
Gross international reserves (end of period) 4	8,609	11,330	17,878	11,940	14,259	16,289	22,330	29,057	36,228
Memorandum items:
Gross domestic product (millions of U. S. dollar)	45,168	59,263	84,945	68,632	83,590	97,218	108,710	123,271	133,963
Official exchange rate (kwanzas per U.S. dollar; end-of-period)	80.2	75.0	75.1	...	...	...	...	...	...
Oil production (thousands of barrels per day)	1,427	1,717	1,900	1,790	1,900	2,016	2,069	2,069	1,994
Price of Angola's oil (U.S. dollars per barrel)	61.4	67.0	89.9	53.5	68.5	71.5	73.0	75.0	76.8
Non-oil fiscal balance/GNDI	-25.6	-31.0	-38.7	-39.9	-31.6	-28.5	-26.0	-22.9	-20.8
Sources: Angolan authorities, and IMF staff estimates and projections. 1 End of period. A positive sign denotes appreciation. 2 As percentage of beginning-of-period M3. 3 Percent of exports of goods and services. 4 Includes government deposits in overseas accounts and less liquid assets.