20240326-IMF-Angola_2023_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Angola_99页_10mb

2023 Article IV Consultation Summary: Angola

Core Content

The International Monetary Fund (IMF) concluded the 2023 Article IV consultation with Angola on March 8, 2024, following discussions that took place from December 4 to 15, 2023. The consultation focused on Angola's economic developments, challenges, and policy responses in the context of a double shock in 2023 that nearly halted its economic recovery.

Main Economic Indicators

Key Economic Developments

• 2023 Economic Shock: Angola's economic recovery in 2021/22 was nearly halted in 2023 due to a double shock: a decline in oil production and prices, and the end of the debt moratorium.
• Growth Performance: Growth for 2023 was estimated at 0.5%, with a contraction of 6.1% in the oil sector and 2.9% in the non-oil sector.
• Inflation: Headline inflation increased significantly to 20.0% y/y by end-2023, driven by the depreciation of the kwanza and fuel subsidy cuts.
• Fiscal Adjustments: Authorities tightened fiscal policy in the second half of 2023 by cutting capital spending and implementing the first phase of fuel subsidy reform in June 2023.
• Public Debt: Public debt-to-GDP increased by 19 percentage points to about 84% of GDP in 2023, mainly due to a weaker exchange rate.
• Exchange Rate: The kwanza depreciated by 40% in May-June 2023, but stabilized afterward, with international reserves remaining at about 7 months of import coverage.
• Oil Prices and Production: Angola oil price dropped to an average of $81.0 per barrel in 2023, and oil production decreased by 6.1% to 1.205 million barrels per day.

Policy Responses

• Fiscal Policy: The 2024 budget includes a sharp reduction of fuel subsidies as part of a multi-phase reform plan. However, the implementation details and mitigation strategy are still pending.
• Monetary Policy: The central bank (BNA) increased the monetary policy rate by 150 bps to 18% and raised reserve requirements to 20%. Efforts to transition to an inflation-targeting framework and enhance exchange rate flexibility are ongoing.
• Banking Sector: The banking sector remains fragmented with pockets of high vulnerability. Banks benefited from the kwanza depreciation, but loan performance has deteriorated. The BNA is urged to resolve problem banks and strengthen financial stability.
• Structural Reforms: The implementation of the National Development Plan (2023-2027) is critical for achieving diversified and resilient growth. Key areas include improving human capital, enhancing the business environment, promoting financial inclusion, and strengthening governance and transparency.

Risks and Outlook

• Downside Risks: A larger-than-expected decline in oil prices and production, delayed implementation of fuel subsidy reform, difficult access to international capital markets, and financial sector risks.
• Upside Risks: Higher-than-expected oil prices and potential foreign liquidity buffers from recovered assets and oil abandonment funds.
• Economic Outlook: Growth is projected to recover in 2024–2025, supported by improved oil production and non-oil sector performance. Inflation is expected to remain elevated in 2024 but gradually decline thereafter. The primary fiscal balance is expected to improve and remain positive due to continued fuel subsidy reform and lower debt service.

Executive Board Assessment

• Fiscal Consolidation: Continued fiscal consolidation and structural reforms are essential for improving fiscal sustainability and maintaining macroeconomic stability.
• Monetary Policy: A tight monetary policy stance is needed to control inflation and exchange rate pressures, with the central bank urged to improve communication and coordination with the Ministry of Finance.
• Exchange Rate Flexibility: Enhancing exchange rate flexibility and external buffers is key to managing shocks.
• Financial Stability: The authorities are encouraged to strengthen financial stability through effective supervision and resolution mechanisms.
• Diversification: The successful implementation of the National Development Plan is vital for achieving a more diversified and resilient economy.

Next Steps

• The next Article IV consultation with Angola is expected to follow the standard 12-month cycle.
• The authorities are urged to continue their reform efforts, including improving communication and coordination with stakeholders, especially during periods of economic shock.
• The IMF is ready to provide technical assistance to support the implementation of the fuel subsidy reform and other structural reforms.