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A major portion of sub-Saharan Africa’s foreign exchange earnings are devoted to the procurement of petroleum. This situation could be ameliorated: a revamping of policies and practices in hydrocarbons procurement and distribution could yield savings in the region of an amount significantly greater than yearly net disbursements of World Bank loans and credits to all the continent combined.

International Monetary Fund

The Angolan government’s efforts to achieve macroeconomic stability to bring inflation and fiscal deficit considerably down are paying off despite high vulnerability to oil revenue shocks. The expected overall growth of up to 7 percent will be contributed to by increased oil production, multiple public investment programs, tax administration reforms, and inflation control. Concentrating on a medium-term fiscal framework, structural transformation and diversification are expected to reinforce the economy. The Executive Board, which welcomed the Stand-By-Arrangement and Financial Sector Assessment Program (FSAP), suggested removing exchange restrictions.

International Monetary Fund. African Dept.

KEY ISSUESContext and outlook: 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.Focus of consultation: Discussions focused on mitigating the main risks to the macroeconomic framework and, inter alia, policies to return to structural fiscal surpluses over the medium term, and to support economic diversification and inclusive growth, the modernization of the monetary policy framework, and financial stability.Key policy recommendations:• Return to structural fiscal surpluses in line with the objective set forth in Angola’s Sovereign Wealth Fund, by mobilizing additional nonoil tax revenue, improving the efficiency of public investment, and reducing current spending, including by phasing out the costly and regressive fuel subsidies—while mitigating the impact on the poor through well-targeted social assistance.• Adopt an improved medium-term fiscal framework, focusing on the structural fiscal balance to limit the impact of the oil sector on the nonoil economy.• Develop a coherent asset-liability management framework, including awell-designed stabilization fund to shield the budget from oil revenue fluctuations.• Further improve public financial management systems to avoid, inter alia, a recurrence in the future of domestic payments arrears.• Continue improving the business climate to boost economic development, diversification, and competitiveness.• In transitioning over the medium-term toward an inflation targeting regime, enhance the central bank’s capacity to collect and analyze high-frequency economic data, and continue de-dollarizing the economy.• 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 minimize fiscal costs, as envisaged in the recently-approved law on public guarantees.

Mr. Alonso A Segura Vasi, Walter Zarate, Mr. Gonzalo C Pastor Campos, and Mr. Ulrich H Klueh
This paper attempts to offer specific inputs to the debate on local content promotion in the oil industry, using the specific case of São Tomé and Príncipe as point of reference. Our approach emphasizes inter-sectoral linkages and institutional pre-conditions for local content promotion. Based on an Input-Output description of the economy, we quantify the consistency between the prospective oil sector development and the growth of other sectors of the economy. We also assess a number of sectoral policies and "niche" activities within the oil industry that would maximize the local benefits from oil exploration.
Nir Klein
Recent empirical studies have shown an inverse relation between natural resource intensity and long-term growth, implying that the natural resources generally impede economic growth through various channels (the “natural resource curse”). This paper departs from these studies by exploring the intersectoral linkages between oil and non-oil sectors in a cross-country perspective. The paper shows that the applicability of “natural resource curse” across oilbased economies should be treated with caution as the externalities of the oil sector highly depend on the countries’ degree of oil-intensity. In particular, the results show that, in low oil-intensity economies, the incentives to strengthen both fiscal and private sector institutions lead to positive inter-sectoral externalities. In contrast, weaker incentives in high oil-intensity economies adversely affect fiscal and private sector institutions and consequently lead to negative inter-sectoral externalities.
Mr. Thomas Baunsgaard
The paper discusses options available to tax mineral extraction projects particularly in developing countries. A desirable government share of the economic rent generated from mineral extraction can be achieved through different tax and non-tax instruments. This gives some room to design a fiscal regime that will be attractive to investors while providing the government with a fair share of the economic rent. However, achieving this will require a careful assessment of the appropriate distribution of risk and reward between the investor and the government. Moreover, there is growing pressure on countries to provide increasingly lenient fiscal terms so as to remain competitive as global investment destinations.
Ali Alichi and Mr. Rabah Arezki
The paper provides an alternative explanation for the "resource curse" based on the income effect resulting from high government current spending in resource rich economies. Using a simple life cycle framework, we show that private investment in the non-resource sector is adversely affected if private agents expect extra government current spending financed through resource sector revenues in the future. This income channel of the resource curse is stronger for countries with lower degrees of openness and forward altruism. We empirically validate these findings by estimating non-hydrocarbon sector growth regressions using a panel of 25 oil-exporting countries over 1992-2005.
International Monetary Fund

Angola’s economy was badly buffeted by the sharp drop in global oil prices. Policy discussions for the review focused on the 2011 budget, the handling of the arrears problem, monetary and exchange rate policies, and key elements of the authorities’ administrative and policy reform agenda. Angolan banks have not been severely impaired by the financial instability of the past two years, and the sector maintains an adequate capital buffer. Four elements—public financial management, tax reform, improving the business environment, and transparency and safeguards issues—are discussed.

International Monetary Fund. African Dept.

The oil price shock that started in mid-2014 has substantially reduced fiscal revenue and exports, with growth coming to a halt and inflation accelerating sharply. This has brought to the forefront the need to address more forcefully vulnerabilities and dependence on oil, and to diversify the economy. The authorities have taken steps to mitigate the impact of the external shock: an 18 percent of GDP improvement in the non-oil primary fiscal balance over 2015-16, mainly through spending cuts including the removal of fuel subsidies, has been implemented; and the kwanza has been devalued against the U.S. dollar by over 40 percent since September 2014, with international reserves being used to smooth the depreciation. However, the exchange rate has been re-pegged since April 2016 leading to an appreciation of the kwanza in real terms, and further policy actions are needed to continue adjusting the economy to the ‘new normal' in the oil market and to return growth to a level consistent with poverty reduction.

Chris Geiregat and Ms. Susan S. Yang

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