Statement at the Conclusion of the 2012 Article IV Consultation and First Post-Program Monitoring in Angola

A staff team from the International Monetary Fund (IMF), led by Mr. Mauro Mecagni, visited Luanda from May 2 to May 17, 2012 to conduct the 2012 Article IV Consultation and First Post-Program Monitoring Mission. During its stay, the mission met with Ministers and other senior government officials1, and representatives of the banking, business, diplomatic, and academic communities. The mission also had the opportunity to visit the provinces of Kwanza Norte and Malange.

At the end of the mission, Mr. Mecagni issued the following statement:

“The Angolan authorities’ stabilization program supported by the 2009-2012 Stand-By Arrangement achieved its key objectives. Three years after the abrupt decline in world oil prices that severely affected its economy, Angola has attained: an improved fiscal position, a more comfortable level of international reserves, a stable exchange rate, and lower inflation. Domestic arrears have been settled. Significant progress has also been made toward improving fiscal transparency and accountability.

“Macroeconomic performance in 2011 was affected by oil production problems. Robust non-oil growth compensated for the oil sector decline, resulting in an overall real growth rate of about 4 percent. Inflation continued its gradual decline, to about 11 percent at the end of the year. The overall fiscal surplus increased to about 10 percent of GDP, in part helped by high oil prices. International reserves came to exceed US$27 billion by the end of the year, a level equivalent of 6 months of 2012 imports.

“The pace of economic activity is expected to pick up in 2012, as oil production rebounds. Growth is projected to accelerate to about 8 percent. Economic activity in several sectors is benefitting from a scaling-up of public investment programs and from the settlement of past government arrears. Agricultural output growth is, however, being affected by an ongoing drought. On the policy front, the authorities are working to (i) strengthen the institutional setting for fiscal policies and incorporate the quasi-fiscal operations previously conducted by the state-oil company into the budget; (ii) make further progress in explaining the large cumulative residual in the fiscal accounts for 2007-2010; and (iii) modernize the framework for monetary policy and financial sector stability.

“Economic prospects over the next few years remain positive given current projections for oil prices and the strong reform momentum envisaged in the authorities’ medium-term plans. Policymakers in Angola are appropriately focusing on three key issues:

• The economy of Angola is subject to uncertainty stemming from oil prices, oil production, and the still evolving institutional setting. These sources of volatility affect budget implementation, and can amplify the negative effects of stops and starts in public investment on the economy. To address this issue, the authorities are strengthening fiscal mechanisms to sustain the hard-won gains in macroeconomic stability and support the implementation of their ambitious development plans.

• The new foreign exchange law for oil companies will involve the shift of a large share of their financial transactions from offshore to domestic banks. This is expected to increase the scope for domestic financial intermediation and serve as a channel to promote increased competition and financial innovation. However, it may also result in a rapid expansion of banks’ balance sheets. In order for the process of financial deepening to be sustainable, a significant strengthening of prudential supervision is advisable prior to the gradual implementation of the law.

• Building on existing efforts, economic policies need to continue enabling the structural transformation and diversification of the economy. To unlock Angola’s vast economic potential and build momentum for inclusive growth, the authorities are encouraged to pursue policies that will bring about (i) further improvements in human and physical capital, by continuing to rebalance budget allocations toward social program and infrastructure investment; (ii) a continued decline in inflation; and (iii) a decisive improvement in the business environment and lower production and distribution costs, to enable a greater private sector contribution to economic development.

“Over the next few years, the authorities will need to address these issues against a global backdrop that is improving but where downside risks remain elevated. Several advanced economies are experiencing lower growth as a result of fiscal consolidation and bank deleveraging. These developments could indirectly affect Angola through lower export demand and increased investor risk aversion. In this context, the Angolan authorities recognize the need to balance a judicious scaling-up of public investment against the advisable accumulation of additional fiscal and reserves buffers.

“The IMF team takes this opportunity to thank the Angolan authorities for the excellent cooperation extended throughout the mission.”

1 Minister of State for Economic Coordination Manuel Domingos Vicente, Minister of Planning Ana Dias Lourenço, Minister of Finance Carlos Alberto Lopes, Minister of Economy Abrahão Pio dos Santos Gourgel, Minister of Commerce María Idalina de Oliveira Valente, Minister of Agriculture, Rural Development, and Fisheries Afonso Pedro Canga, Minister of Education Pinda Simão, Minister of Territorial Administration Bornito de Sousa, Minister of Public Administration, Labor, and Social Security António Pitra Neto, Minister of Urbanism and Construction Fernando Alberto de Lemos Soares da Fonseca, Central Bank Governor José de Lima Massano, Sonangol President Francisco de Lemos José María

Source: International Monetary Fund (IMF) – Press Release – 18 May 2012