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IMF Executive Board Concludes 2012 Article IV Consultation and First Post Program Monitoring with Angola

By International Monetary Fund (IMF)
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LUANDA, Angola, July 17, 2012/African Press Organization (APO)/ -- On July 11 the Executive Board of the International Monetary Fund (IMF) concluded the 2012 Article IV Consultation and First Post Program Monitoring with Angola.1
Angola has emerged from more than four decades of war to become Africa's second largest oil exporter and its third largest economy. During the oil price boom of 2003–08 Angola began to rebuild its infrastructure, the oil and non-oil sectors grew substantially, and per capita gross domestic product (GDP) reached middle-income levels. Nonetheless, the economy remained highly vulnerable to oil revenue volatility.
With highly expansionary policies backing a full-steam reconstruction effort, Angola faced severe macroeconomic imbalances after the collapse in oil prices in 2008–09. In response, the authorities put in place a stabilization program supported by the 2009–2012 Stand-By Arrangement (SBA). Under the program considerable progress was made toward regaining macroeconomic stability. Angola attained an improved fiscal position, a more comfortable level of international reserves, a stable exchange rate, and lower inflation. Large domestic arrears were settled, and progress was made in strengthening fiscal transparency and accountability.
Macroeconomic conditions continued to improve in 2011. Oil production problems constrained real growth to 3.9 percent. Headline inflation declined, helped by a stable exchange rate. The overall fiscal surplus increased, mainly due to high oil prices. The external current account improved, and international reserves rose to the equivalent of almost 7 months of next year's imports of goods and services.
Fiscal consolidation was critical in supporting stabilization in the wake of the 2009 crisis: a sharp reduction in the non-oil primary deficit was achieved in 2009–2010, albeit with some reversal in 2011. Larger-than-expected spending on goods and services, surging subsidies, and the incorporation of quasi-fiscal operations conducted by the state-owned oil company on behalf of the government contributed to widen the non-oil primary deficit, from 43.6 to 48.2 percent of non-oil GDP. The monetary stance was also relaxed starting in mid-2011.
The outlook for 2012 remains favorable, notwithstanding the recent decline in oil prices. The pace of economic activity is expected to accelerate, with overall growth close to 7 percent as oil production rebounds. The energy, transportation, and construction sectors are likely to benefit from a gradual scaling up of public investment programs. However, agricultural output and food- prices are affected by a drought.
Over the medium term the authorities are focusing on creating the fiscal space to support the scaling up of investment spending within a reduced revenue envelope. While non-oil tax revenue is set to increase as a result of tax administration reforms, it will not fully offset the decline in oil revenue implied by oil price and production projections. Current spending is expected to remain broadly unchanged as a share of GDP, but capital spending will gradually increase as the authorities implement their development plans. As a result, the overall fiscal balance is projected to move to a modest deficit by 2016. The debt profile is expected to remain manageable, albeit vulnerable to oil revenue shocks. The gradual pace of the scaling-up effort will provide the authorities with time to further strengthen capacity and reinforce fiscal buffers and institutions. Against this backdrop, the authorities are confronting several policy challenges, including (i) putting in place a comprehensive medium-term fiscal framework; (ii) accumulating further international reserves in an environment of elevated external risks; and (iii) enabling the structural transformation and diversification of the economy to promote more inclusive growth.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities' progress in stabilizing the economy under their SBA-supported program. The fiscal position has improved, international reserves have been rebuilt, the exchange rate has stabilized, and inflation is on a gradually declining path. Although Angola's growth outlook is favorable, the country remains vulnerable to oil revenue shocks, a large infrastructure gap persists, and poverty remains widespread. Directors welcomed the authorities' focus on medium-term priorities to address these challenges, calling for sustained efforts to further strengthen policy buffers, safeguard financial sector stability, and diversify the economy.
Directors underscored the importance of maintaining a prudent fiscal stance, anchored by a realistic spending envelope. They encouraged the authorities to consider a supplementary budget to put the non-oil primary deficit ratio back on a declining path and rebalance expenditure towards social and infrastructure spending. Directors called on the authorities to continue phasing out quasi-fiscal operations conducted by the state-owned oil company, incorporating them into budgetary operations. They welcomed the draft reconciliation report aimed at explaining inconsistencies in the fiscal accounts for 2007-2010, and looked forward to receiving a full assessment for the complete reconciliation exercise at the next Board review of post-program performance in Angola.
Directors stressed the importance of establishing a robust medium-term fiscal framework to shield the economy from oil revenue volatility, and welcomed the authorities' plans in this regard. They called for strengthened governance of oil revenue, including by setting clear rules for the accumulation and use of the resources of the Oil for Infrastructure Fund. Directors encouraged steps to continue improving non-oil tax revenue collection and contain fuel subsidies. They also saw merit in further strengthening the international reserves buffer.
Directors welcomed recent initiatives to reform the monetary policy framework and strengthen liquidity management. They encouraged the authorities to mop up excess liquidity to support continued disinflation. Directors underscored the need to manage the risks associated with the new foreign exchange law for the oil sector carefully, including by taking timely steps to strengthen the central bank's supervisory capacity.
Directors concurred with the recent Financial Sector Assessment Program (FSAP) findings. They noted the vulnerability of the financial system to external shocks, the constraints to banking supervision capacity, and the difficulty in managing liquidity shifts linked to large oil sector transactions. Directors welcomed the steps being taken to mitigate these risks, and encouraged the central bank to strengthen the enforcement of prudential standards and creditor rights. They supported continued efforts to comply with international Anti-money laundering - combating the financing of terrorism (AML/CFT) standards. Directors also encouraged the authorities to remove remaining exchange restrictions.

Directors underscored the importance of structural reforms to improve the business environment, enhance competitiveness, and diversify the economy. They supported the authorities' focus on improving human and physical capital and strengthening the regulatory environment, and looked forward to sustained progress on their development strategy.

Angola: Main Economic Indicators, 2009–20131

2009 2010 2011 2012 2013

Est. Projections

Real economy (percent change, except where noted)

Real gross domestic product
2.4 3.4 3.9 6.8 5.0
Oil sector
-5.1 -3.0 -5.4 8.5 3.0
Non-oil sector
8.1 7.6 9.5 6.0 6.1
Nominal gross domestic product
-5.2 26.6 29.0 11.4 7.9
Oil sector
-25.4 27.6 36.7 3.3 -1.9
Non-oil sector
21.1 25.7 22.8 18.8 15.5
GDP deflator
-7.4 22.4 24.2 4.3 2.7
Non-oil GDP deflator
12.1 16.8 12.2 12.1 8.8
Consumer prices (annual average)
13.7 14.5 13.5 10.8 8.6
Consumer prices (end of period)
14.0 15.3 11.4 9.6 7.5
Gross domestic product (billions of kwanzas)
5,989 7,580 9,780 10,897 11,753
Oil gross domestic product (billions of kwanzas)
2,662 3,396 4,641 4,792 4,703
Non-oil gross domestic product (billions of kwanzas)
3,327 4,184 5,139 6,105 7,051
Gross domestic product (billions of U.S. dollars)
75.5 82.5 104.3 112.7 118.0
Gross domestic product per capita (U.S. dollars)
4,082 4,329 5,314 5,576 5,668
Central government (percent of GDP)

Total revenue
34.5 43.5 48.8 44.9 41.3
Of which: Oil-related
24.2 33.0 39.0 34.4 29.7
Of which: Non-oil tax
9.0 7.8 7.3 8.6 9.6
Total expenditure
41.9 37.9 38.6 38.8 39.6
Current expenditure
29.5 28.3 29.9 29.8 29.6
Capital expenditure
12.4 9.7 8.7 9.0 10.0
Overall fiscal balance (budget basis)
-7.4 5.5 10.2 6.1 1.7
Non-oil primary fiscal balance (budget basis)
-29.8 -24.1 -25.3 -24.9 -24.9
Non-oil primary fiscal balance/Non-oil GDP
-53.7 -44.6 -48.2 -44.5 -41.5
Money and credit (end of period, percent change)

Broad money (M2)
62.6 14.0 33.5 15.3 39.5
Percent of GDP
38.5 34.6 35.9 37.1 48.0
Velocity (GDP/M2)
2.6 2.9 2.8 2.7 2.1
Velocity (non-oil GDP/M2)
1.4 1.6 1.5 1.5 1.3
Credit to the private sector (12-month percent change)
59.5 25.0 30.3 20.3 15.9
Balance of payments

Trade balance (percent of GDP)
24.2 41.2 45.1 39.5 33.6
Exports of goods, f.o.b. (percent of GDP)
54.2 61.4 64.5 59.5 54.4
Of which: Oil exports (percent of GDP)
52.9 59.9 63.0 58.3 53.1
Imports of goods, f.o.b. (percent of GDP)
30.0 20.2 19.4 20.0 20.8
Terms of trade (percent change)
-28.3 19.6 24.1 -4.0 -7.0
Current account balance (percent of GDP)
-9.9 9.0 9.6 7.3 4.4
Gross international reserves (end of period, millions of U.S. dollars)
13,126 19,226 27,483 31,031 34,416
Gross international reserves (months of imports)
4.4 5.1 6.9 7.7 8.2
Net international reserves (end of period, millions of U.S. dollars)
12,621 17,327 25,171 28,719 32,104
Exchange rate

Official exchange rate (average, kwanzas per U.S. dollar)
79.3 91.9 93.8 … …
Official exchange rate (end of period, kwanzas per U.S. dollar)
89.4 92.6 95.3 … …
Nominal effective exchange rate change (depreciation -)
0.5 -15.9 -5.6 … …
Real effective exchange rate (depreciation -)
12.6 -5.7 5.4 … …
Debt (percent of GDP)

External public sector debt (including IMF)
20.1 21.7 19.7 19.5 20.4
Total public sector debt (gross), external+domestic
36.4 37.6 31.5 28.5 30.6

Oil production (millions of barrels per day)
1.809 1.755 1.660 1.801 1.855
Oil and gas exports (billions of U.S. dollars)
39.9 49.4 65.7 65.7 62.7
Angola oil price (average, U.S. dollars per barrel)
60.9 77.8 110.3 101.8 94.2
WEO oil price (average, U.S. dollars per barrel)
61.8 79.0 104.0 101.8 94.2

Sources: Angolan authorities; and IMF staff estimates and projections
1. Incorporates the impact of the new foreign exchange law in 2013 and beyond.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: