Journal Issue

Statement by Peter Gakunu, Executive Director for Angola and Jose Sulemane, Advisor to Executive Director

International Monetary Fund
Published Date:
October 2007
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The Angolan authorities wish to acknowledge the Fund’s constructive engagement and dialogue, and thank staff for the well written reports which clearly identify the development challenges as well as the policy options facing the country in the medium to long term.

Recent Macroeconomic Developments

Angola continues to record remarkable growth performance resulting from implementation of strong macroeconomic and structural policies. Real GDP growth in 2006 was 18.6 percent, following an impressive growth rate of 20.6 percent in 2005. Both oil and non-oil sectors grew at double-digits (13.1 and 27.5 percent, respectively). Good weather, high oil prices and countrywide reconstruction activities contributed to this outturn. Angola has made significant progress in reducing inflation from 18.5 percent in 2005 to 12.2 percent at the end of December 2006. Increased exports of the main commodities (crude oil and diamonds) further strengthened the external account. The current account surplus jumped from 16.8 percent of GDP in 2005 to 23.3 percent in 2006, and net international reserves more than doubled during the year, reaching US$ 8.6 billion, almost 7 months of imports of non-oil goods and services.

On the fiscal side, high oil prices and rising oil production and exports provided significant boost to government revenues in 2006. As a result, the overall fiscal surplus amounted to 14.8 percent of GDP, doubling the fiscal surplus from previous year, though the capital spending shortfall also contributed to this outcome.

On monetary sector, the BNA continued to intervene in the market to mop up excess liquidity from the economy. As a result, base money growth remained within targeted levels, while the exchange rate remained stable throughout the year. However, other monetary aggregates grew rapidly, following increased demand for credit reflecting strong growth in construction and transportation sectors. The banking system remained strong and well capitalized.

Policies for 2007-08

The authorities have been implementing two-year economic programs; the 2007-08 program envisages the consolidation of macroeconomic reforms and price stability, which aim at supporting private sector activities, coupled with reforms in the public, financial and legal sectors. In the meantime, the medium term prospects for the economy remain positive, and recent developments suggest that real growth will remain strong, given the favorable external conditions. Real GDP growth for 2007 is projected to be about 23 percent, reflecting the coming into production of new oil fields, and also robust growth in agriculture, construction, and the power sector. For the period 2008-12, growth is expected to average 7.5 percent per annum.

The authorities are aware of the medium term challenges facing the economy and will continue to take appropriate measures, including improving the management of oil wealth to ensure long-term fiscal and debt sustainability; improving the competitiveness of the economy; and development of the non-oil/non-extractive sectors of the economy. While recognizing that oil is the major commodity contributing to GDP and exports, the authorities are conscious of the volatility of this market and are working towards the design and implementation of a mix of policies with a medium term focus to avoid boom-bust cycles and also pursue structural reforms to support the development of the non-oil sectors.

The authorities are investing the oil revenues in programs that maximize social and economic returns and ensure broad based development. They are committed to building institutional capacity and implementing reforms that will facilitate efficient and effective public administration, while developing a legal framework conducive to rapid and sustainable economic and social development.

Fiscal Policy

The authorities remain strongly committed to improving public financial management (PFM) and moving towards a multi-year fiscal framework with prioritized medium term spending, as a comprehensive approach to tackle the relationship between oil revenues and infrastructure spending for future development of the Angolan economy. The authorities believe that a stronger PFM is important for strengthening budgeting and improving its monitoring.

As acknowledged by staff, the government’s recent practice of adopting conservative oil-price rule is important in guiding expenditures and creating some buffer. However, staff have suggested the use of the concept of non-oil primary balance as an anchor to assessing the fiscal stance. The authorities feel that a more appropriate indicator should be non-oil primary current balance, to take into account the particular situation of Angola which calls for higher levels of investment in infrastructure given the needs for the reconstruction effort.

Angola is successively emerging from almost 30 years of civil war, with practically no infrastructure and human capital. There is a need therefore to invest heavily in these areas, in order to unleash the non-oil economic activity. Therefore, the country needs to expand capital expenditures financed by oil revenues, provided that they are within the limits of its absorptive capacity. On the other hand, most of the expenditure would be on imports, which counters the argument of increased domestic liquidity that might bring about inflationary pressures. Hence, the focus should be on assisting the country to undertake post conflict reconstruction in an efficient and effective manner.

Monetary Policy

The authorities are in agreement with staff on the BNA’s decision to use a monetary target to anchor its inflation objective. However, due to the extensive dollarization, the choice of the intermediate policy target would need to be evaluated on a continuous basis to ensure its relevance.

The authorities agree that, an appropriate exchange rate policy could promote higher productivity and facilitate trade expansion and more diversification of the economy, taking advantage of the already liberalized trade regime. At the same time, the exchange rate policy choice must take into consideration the presence of dollarization, lack of monetary instruments and the shallow markets. Furthermore, in the case of Angola, while the exchange rate regime is an important factor, there is a need to give greater attention to the product and labor markets, reforms aimed at productivity growth, infrastructure development, improvement in business and investment environment, and also financial markets development. While the banking sector in Angola continues to expand and become more competitive, the authorities will continue to address the major weaknesses in the sector, and strengthen the BNA’s analytical capacity and on- and off-site monitoring of banks, consistent with the process of modernization of the sector. They welcome the TA support from the Fund to develop a financial sector strategy which would be based on the findings of an FSAP mission to be undertaken next year.

Structural Reforms

The Angolan authorities have been implementing reforms to address the consequences of the prolonged civil war. A critical area has been strengthening PFM to ensure effective management of the growing mineral wealth. Measures are also being undertaken to improve budget preparation, the coordination between the capital and current expenditures, and dialogue between the Ministry of Finance/Ministry of Planning and line ministries on budgeting and planning issues. Similarly, the accountability system is being strengthened.

The authorities are aware of the need for major reforms to improve the business climate. Greater emphasis will be placed on developing the private and the non-oil sectors. Two complementary actions will be considered in this regard: public investment in infrastructure to help address the supply-side bottlenecks; and the cost of doing business will be reduced, including improvement in business registration, and the legal and regulatory framework for business, and contract enforcement.

In order to improve policy design and strengthen analytical work on development issues, the authorities are making progress in improving coverage of the statistical system (quality, coverage, and timeliness). In addition, surveys to assess policy implementation and poverty levels will be undertaken.

The authorities are aware of the challenges associated with the efficient management of natural resources and the need for transparency and good governance. In this context, they understand that adherence to the Extractive Industry Transparency Initiative (EITI) will be important. In addition, they feel that further measures to render sustained gains, in terms of improvement of public financial management, need to be looked at in a more comprehensive way. They are therefore committed to comprehensive reforms to align the government’s public financial management practices to the international best practices; and have thus completed a Fiscal ROSC during 2006 to direct their actions to cover the gap between the current practices and the international best practices.


Angola’s economic, social and political situation is experiencing a remarkable transformation. The recovery process continues under a more stabilized macroeconomic environment. The economic performance has been strong as a result of enhanced reforms. The authorities understand the importance of a closer engagement, dialogue, and frequent exchange of views to provide opportunities to improve policy design, implementation, and monitoring in Angola and will remain committed to improving the ongoing dialogue with the Fund.

Angola continues to face challenges towards improved living standards of its population and meet the MDGs. Despite its significant natural resources, Angola needs the support of international partners including TA to advance its reform agenda steadily. The authorities look forward to positive outcomes in their current effort with the Paris Club creditors and request the Fund to continue to provide the necessary support.

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