Angola’s recent economic developments have been positive, but softening oil revenue and limited proven oil reserves highlight the need to contain emerging fiscal deficits, preserve policy buffers, and continue diversifying the economy, the International Monetary Fund (IMF) said Saturday in its report on the southern Africa country’s outlook.
Following discussions with Angolan officials in July on the country’s economic development and policies and subsequent views of the IMF Executive Board, the Fund said Angola’s main challenge, like most resource rich countries, is to translate economic growth into improvements in the living standards of its populace.
After a strong growth in 2013 estimated at 6.8 percent, Angola’s economic growth in 2014 is projected at 3.9 percent despite a decline in oil output.
The Fund observed that robust growth in the non-oil economy, mainly driven by a very good performance in the agricultural sector, is expected to offset a temporary but considerable drop in oil production.
Ongoing investments in agriculture are expected to pay off with an increase in agriculture production by about 11½ percent in 2014. Other sectors such as manufacturing, electricity and services, are also expected to contribute.
According to the report, which IMF sent to PANA here, inflation is projected to reach 7½ percent by end-2014, well within the Banco Nacional de Angola (BNA)’s objective.
But the overall fiscal balance, which was in surplus in the last four years, is expected to deteriorate substantially in 2014, reaching a deficit of around 4 percent of GDP.
Angola’s oil revenue fell by 14 percent during January-May 2014, mainly due to a 10 percent decline in oil production related to unscheduled maintenance and repair work in some oil fields.
International reserves at the BNA remain adequate at an equivalent of 7¾ months of imports.
“Notwithstanding strong economic growth over the past decade, poverty and income inequality remain a challenge,” the IMF said, with reference to the 2009 household expenditure survey, released in 2011, which shows that Angola’s income distribution is among the most unequal in sub-Saharan Africa, with the top 10 percent of income earners concentrating one-third of total income, and puts the relative poverty headcount ratio in Angola at 37 percent (60 percent in rural areas).
The country’s oil sector is expected to recover and grow by 2¼ percent on average over the next five years, as the decline in production in some oil fields is more than compensated by the commissioning of seven new fields, including a first phase of a pre-salt oil field expected to start operating in 2017.
IMF said large investments in the non-oil sector are expected to generate much needed diversification and job creation, mainly in the agricultural sector, but also in electricity, manufacturing, and services.
On the projected strong growth in the non-oil sector of about 7¾ percent on average over the next five years, the Fund was optimistic that the growth will increase domestic competition, thus contributing to reducing inflation further.
“Growth prospects over the longer term, however, are uncertain but should be firmed up during 2015, as ongoing pre-salt prospection should help to determine the amount of commercially viable oil reserves,” said the report.
On Angola’s debt position, IMF found that public and external debts were rising but remain sustainable. Gross public debt rose by about 5 percentage points during 2013 to 35 percent of GDP at end-2013, mostly because of external borrowing by the state-owned oil company Sonangol.
IMF has put forward key policy recommendations to Angola, including improvement of the efficiency of public investment, and reducing current spending by phasing out the costly and regressive fuel subsidies, while mitigating the impact on the poor through well-targeted social assistance.
Also, the Fund has recommended adoption of an improved medium-term fiscal framework, focusing on the structural fiscal balance to limit the impact of the oil sector on the non-oil economy.
Angola should develop a coherent asset-liability management framework, including a well-designed stabilisation fund to shield the budget from oil revenue fluctuations; and further improve public financial management systems to avoid, inter alia, a recurrence in the future of domestic payments arrears.
The Fund’s report urges Angolan authorities to continue improving the business climate to boost economic development, diversification, and competitiveness.
In transitioning over the medium-term toward an inflation targeting regime, Angola should enhance the central bank’s capacity to collect and analyse high-frequency economic data, and continue de-dollarising the economy.
The Fund urged the country to further strengthen the financial system, by continuing to improve the transparency and accountability of banks, and enhancing bank supervision; manage public guarantees transparently and with a view to minimising fiscal costs, as envisaged in the recently-approved law on public guarantees.
“While the authorities have taken steps to collect private sector debt statistics, there is still no available data on private sector debt for Angola,” the report observed, adding that the external debt sustainability analysis is currently solely based on public sector external debt, including two state-owned enterprises — Sonangol and TAAG (the national airline).
In a joint statement accompanying the report, Momodou Bamba Saho and Chileshe Mpundu Kapwepwe, Executive Director and Alternate Executive Director for Angola respectively, said: “The growth path over the medium term is expected to remain robust, sustained by a recovery in the oil sector with the commissioning of seven new fields.”
Both noted that, in addition, large investments in the non-oil sector, particularly in agriculture, infrastructure, manufacturing and social services, were expected to create the necessary conditions to spur the much-needed economic diversification and job creation.
“In this regard, prioritising public resources to expand the accumulation of capital
and enhance productivity in the non tradable sector, to reduce the dependence on imports, is one of the centre pieces in the implementation of the National Development Strategy,” they said.