Transition to Market
Chapter

Chapter 18 Angola: Improving Fiscal Institutions

Editor(s):
Vito Tanzi
Published Date:
June 1993
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Author(s)
Isaias Coelho

Angola is going through a complex political and economic transformation, similar to developments in other parts of the world. The end of a long civil war necessitates a huge reconstruction effort. “Democratic centralism” has been replaced by multiparty democracy, and general elections were held in September 1992. The economy is being reoriented toward a decentralized price system, albeit slowly, and it is hoped that Angola, a country with great potential, will finally take the road of sustained development.

This chapter reviews recent progress made by Angola, with technical assistance from the IMF and cofinancing by the United Nations Development Program (UNDP), in strengthening its institutional capability to manage public finances. The following section covers briefly the main developments in the post-independence period, until the beginning of the IMF-UNDP project. The next section describes in some detail the various components of the project. The final section suggests further steps to improve public finance management in Angola.

Background

On November 11, 1975, Angola became independent and adopted a constitution that called for a centrally planned economy. Most productive facilities were nationalized, not only on ideological grounds but also for pragmatic reasons of national reconstruction in the wake of the economic disruption brought on by the long, armed struggle for independence. A protracted civil war that followed independence resulted in large-scale flight of capital and of entrepreneurial skills, as well as in a massive exodus from rural communities to the cities, especially to Luanda, where the quality of public services declined markedly. Economic activity was then organized around large state enterprises, often monopolies, and prices were administratively fixed. An informal economy developed, despite attempts to repress it, and exchange rates in the black market became higher than the official rate.

Angola is rich in petroleum, and the Government’s pragmatic oil policies partly made up for the poor performance in other sectors of the economy. Exploration concessions, which produced sizable tax and production-sharing revenue, were negotiated with major international oil companies. Fluctuations in petroleum prices and the U.S. dollar, however, generated financial instability, made worse by the lack of criteria for the allocation of the foreign exchange. For example, the rapid decline of oil prices in the early 1980s forced the Government to make severe cuts in the public investment program. The war raised the priority for defense and internal security expenditures at the expense of social and economic infrastructure outlays, both for operation and maintenance.1

The 1986 fall in oil prices, which tightened the external constraint, imparted momentum to major economic reforms. Finally, when a major economic policy reversal was announced in 1987, it was a slow-moving process, but a new orientation nevertheless. The motto that annually proclaimed the major concerns for the year was in 1987 “The Year of the Party’s Tenth Anniversary and Consolidation of Popular Power” and in 1988 and 1989 was, respectively, “The First and The Second Year of Economic and Financial Restructuring.”

The economic and financial restructuring program (SEF) announced in 1987 was rooted in decisions taken in the Second Congress (1985) of the official MPLA-Workers’ Party, in favor of greater economic liberalization. By 1988, a SEF Secretariat was coordinating various task forces engaged in the design of economic reforms. Yet, the SEF was not an executive agency but an advisory team, which proposed policy and structural measures in the financial area, especially in taxation, budget, and banking. An ambitious program of reform was established for 1988 and 1989 of which only a modest part was carried out. The disappointingly scanty results obtained with the SEF were in great part attributable to the scarcity of trained personnel, a lack of effective budgetary and financial controls, and weaknesses in the design and implementation of financial policies. Nonetheless, the SEF created awareness for the much-needed reforms and established a starting point for discussions with the Paris Club on debt rescheduling and with international organizations on financial and technical support for reforms.

Significant reforms began in 1988. Price controls were removed from the trade in unprocessed vegetables, and the kandongas (informal markets) were accorded greater toleration, so that in 1989 there were 10 official markets and 31 parallel markets in the city of Luanda. For state enterprises, new legislation was enacted aimed at achieving greater managerial and financial freedom while curtailing reliance on the budget to finance working capital and investment. At the same time, a new law was passed to attract direct foreign investment. In 1988, studies began for a wide-ranging reorganization of the Ministry of Finance, and a working group was set up for the creation of a treasury.

While the SEF still had momentum, an economic recovery plan (PRE) was designed as a specific plan of action for 1989-90. Its objective was to achieve greater decentralization by redefining the scope for private activity, providing a new statute to state-owned enterprises, restructuring the foreign exchange system, and revising the regulations of foreign investment and the banking system. In the state enterprise sector, the plan included measures to reduce subsidy entitlements, to subject enterprises to the income tax on an equal footing with private businesses, and to clarify their financial position regarding debts and arrears. At the same time, the promotion of private initiative and ownership in certain sectors of the economy was also begun.

In September 1990 a government action plan (GAP) was adopted. Pricing policy was revised and three price regimes (fixed prices, fixed markups, and free prices) were established as a first step toward further price liberalization. The price control authority was transferred to the Ministry of Finance with a view to limiting it, over time, to only a handful of goods. The currency was first devalued in March 1991.2

In November 1991 new measures further liberalized prices and foreign trade, payments in kind to civil servants were discontinued, and the currency was devalued a second time along with the introduction of a multiple exchange rate system. In 1991 and 1992, large fiscal deficits occurred in connection with the democratization process and the implementation of the peace accord, which called for the withdrawal of troops from the war zones and their subsequent demobilization. In the first months of 1992, inflation was running at a rate of about 15 percent a month.

General Thrust of the Reforms

As part of the admission of Angola into the IMF, a team from the IMF's Fiscal Affairs Department visited Luanda in May 1989 to assess public finance management, make recommendations for reform, and identify critical technical assistance requirements. The IMF staff soon became aware of the need for a concerted effort to reform public finances and budgetary procedures and, more generally, to provide the Angolan authorities with tools for carrying out economic policies, including access to reliable and timely data. Later in the same year, the Fiscal Affairs Department developed a plan for establishing a treasury.

In 1989, the IMF also sent to Luanda teams of experts from the Monetary and Economic Affairs and Statistics Departments and from the IMF Institute to prepare similar studies in their respective areas. These studies concluded that a considerable gap existed between financial management in Angola and standard practices in the rest of the world. In particular, for the Angolan authorities to exercise financial discipline there was a need for a clear definition of responsibilities for the various aspects of financial policy, improved coordination of policymaking, and enhancement of technical and institutional aspects of the main policy instruments.

The Angolan authorities agreed with these assessments and asked the IMF and the UNDP to design and implement such a program. In early 1990, the three parties agreed on a technical assistance project cofinanced by the UNDP and executed by the IMF. The project contemplated assistance in the following areas during its initial 18 months.

  • Improving budgeting, expenditure control, and accounting procedures;

  • Strengthening financial control over public sector operations through the establishment of a national treasury;

  • Improving tax policy and its administration;

  • Establishing an integrated and comprehensive set of fiscal statistics;

  • Creating an autonomous central bank capable of effectively managing monetary policy and supervising the operations of commercial banks; and

  • Providing training by the IMF Institute in financial programming techniques to create the capacity within the Government to design macroeconomic adjustment programs.

Each component of the project comprised advisory services to revamp procedures, update legislation, and computerize services and to develop human resources through on-the-job training, seminars, structured courses, and a small number of scholarships abroad. Given the depth of the reforms, as well as the large training needs, it was decided to assign resident advisers, instead of relying on periodic visits. A chief technical adviser was designated to coordinate the administrative work, who would also advise on the budget. The Ministry of Finance provided space for the project administrative office, and the various agencies concerned, including the National Bank of Angola, provided office space for the experts. Each adviser was to work closely with his national counterpart and share his knowledge of new techniques so that the reforms would be sustainable after the period of assistance was over.

The National Bank, which functions as both a central bank and a commercial bank, was assigned two experts. One expert was to develop a new accounting plan and establish a proper institutional and administrative framework for accounting and control procedures. In particular, this expert was asked to help separate the commercial and central bank accounts of the National Bank, as a first step toward creating a central bank. The other banking expert was to assist the authorities in planning and establishing a bank supervision department, to operate initially within the National Bank and later at the new central bank. This task included the design of an accounting plan for commercial banks and accounting criteria for commercial banks and other financial institutions. In addition, an expert in fiscal statistics was assigned to the Economic Analysis Department of the Ministry of Finance.

Reforms in the Ministry of Finance

During the socialist years, the Ministry of Finance had been relegated to a secondary role with regard to economic policies, which were decided by the Economic Committee of the Party and the Ministry of the Plan.3 Hard currency, for example, was allocated by the plan and the National Bank with a minimal participation of the Ministry of Finance. Outside Luanda, the operations of the Ministry were hampered by the joint subordination to the local commissariats. The low prestige of the Ministry was reflected in the deterioration of its key institutions, especially the departments in charge of budgeting, accounting, and tax administration, which were unable to attract talented employees. To halt and reverse such a deteriorating trend was the most urgent task.

Budget

During the pre-reform period, budgetary management weakened, and off-budget expenditures grew, predominantly in the defense sector, but also elsewhere. As a result, the Government as a whole borrowed from the National Bank well beyond the already high levels of officially approved deficits. The poor performance of state enterprises contributed decisively to the bleak financial situation by requiring sizable budgetary transfers. In fact, the state enterprise sector not only needed substantial transfers from the budget but soon gained access to the National Bank's credit for financing recurrent losses.

Over time, the budget became more and more irrelevant for policy purposes, as foreign grants were allocated outside the budgetary process, and the budget excluded transactions realized in foreign currencies. Because of the scarcity of foreign exchange, the foreign exchange budget, handled by the National Bank without well-defined rules, had become the relevant allocative instrument. Also, the foreign exchange budget was prepared for shorter periods–usually a quarter–and its forecasts were so unreliable that, in practice, foreign currency was allocated with great discretion.

The revamping of budgetary procedures started with a review of the spending units, which were re-registered with the Budget Department and given a code number. At the same time, the existing budgetary classification was revised to bring it closer to international standards. The new classification was implemented in the budget for 1991.

While the change in the classification of revenues was straightforward, to facilitate policy management expenditures were classified by economic type (investment and current expenditure, together with a breakdown of the latter into wages, goods and services, and so forth) and government function (health, education, public administration, and so forth). The budgetary classification also facilitated presentation by agency, region, and the source of financing. The process of compilation, review, and adjustment of the budget proposals presented by the spending units, as well as the preparation of summary tables and the final budget proposal, was greatly helped by the introduction of computerization in preparing the state budget.4

The new budgetary procedures required an important training effort in the Budget Department, the various regional offices, and the main spending units. Along with the training offered by the project advisers, about 100 middle-level budget officers were trained through the UNDP's Management Development Program, whose project for Angola was adjusted to dovetail with the IMF-UNDP project.

To ensure the comprehensiveness of the budget, the authorities, assisted by the budget adviser, conducted a painstaking but successful effort to bring into the realm of the budget all public revenue and expenditures previously kept separately, notably foreign grants and loans, interest on foreign debt, and military outlays. The public sector component of the foreign exchange budget was also incorporated into the state budget, although on the basis of the best available projections.5 The budget documents introduced columns to specify the amount of spending in domestic currency, in foreign exchange (converted to domestic currency at the relevant exchange rate), and the sum of the two. This simple procedure allowed the National Bank to make available hard currency to the budget, within the agreed limits, in global amounts, leaving to the finance authorities the distribution of these global amounts according to the priorities established in the budget law and in line with the budgetary policies. 6 How effectively such a scheme will work will depend, however, on political considerations, such as the willingness of the National Bank to relinquish piecemeal management of the foreign exchange allocation to the budgetary sector.

The new procedures were fully put into place with the 1992 budget. As a result of the greater availability of information introduced into the budget, the recorded fiscal deficit has jumped in 1991 and 1992 compared with previous years, but the budget has become a worthwhile instrument for assessing the pressure of the public sector over the economy. To make the budget more useful for the conduct of microeconomic and macroeconomic policies, it is necessary to better coordinate it with the plan (especially at the preparation stage) and with the foreign exchange budget (both in their preparation and execution). The lack of a system for ranking public investment proposals according to established priorities and for monitoring the execution of multiyear investment projects is a weakness of the existing planning procedures. The absence of a public investment program has a negative effect on the quality of the investment component of the budget. The budget should also benefit, in the future, from a better screening of personnel expenditures. Now that the war is over, it is possible to conduct a census of public employees, both civilian and military, and to introduce adequate control mechanisms on this important expenditure item.

The authorities decided to introduce the new budgetary methods based on executive orders, in part to speed up implementation, in part because it would have been difficult to incorporate into a previous law various matters that arise during implementation. Since the procedures are already in place–the 1992 budget was the second to be prepared under the new rules–a draft framework law on the budget system has been prepared and is expected to be presented to the National Assembly in the near future.

Treasury

The Treasury was set up to perform the cash management functions of the budget, administer the public sector external and domestic debt, and supervise the financial relations between the state budget and stateowned enterprises. The design and implementation of a system of cash management was given priority. The Treasury does not directly receive or pay any revenue or expenditure. Instead, it uses the National Bank as the financial agent of the budget.

As a result of the cooperative work of the Treasury, the Budget Department, and the National Bank, all accounts kept by spending units with the banking system were closed, and on the same day new accounts were opened in line with the new system. Each spending unit was assigned an account at the National Bank.7 The number of this account matched the code number assigned by the Budget Department to the spending unit.

The banking system was forbidden to open new accounts for any spending unit without authorization of the Budget Department. These new accounts were, in reality, subaccounts of the single account that the Treasury opened at the National Bank.

The single account of the Treasury at the National Bank works as follows. All budgetary revenues are credited to the account. Each spending unit has two subaccounts, one for operations in domestic currency and the other for foreign exchange operations. Each month, on the basis of the expected development of budgetary revenues, the budgetary authorizations, and the forecast of spending needs, the Treasury transfers funds from the Treasury account to the subaccounts. Since this operation consists of a zero-sum transfer between subaccounts, the Treasury's indebtedness to the National Bank is not affected by the release of funds. The spending unit draws on the balances available on its subaccount. At the time these operations are performed, the system provides an automatic record of the cash execution of the budget.

The main advantage of using a single government account for the cash execution of the budget is to economize on average holdings of bank balances, and thus on the cost of servicing the public debt.8 Idle bank balances are minimized through the elimination of inactive accounts with positive balances and, more important, through a better matching of cash needs and availabilities. In the past, the budget figures were divided into 12 installments, and each installment was transferred at the beginning of the month to the account of the spending unit. As a result, redundant balances were kept in some accounts, while other spending units starved for resources.

Also, under the previous rule, the execution of budgetary expenditures did not take into account revenue developments during the year. The authorities provided the newly created Treasury with two minicomputers and peripheral equipment, plus attendant software, which allowed nearly full computerization of the system of cash management (by the Treasury) and control of the cash execution of the budget (by the National Bank). As a result, a small team can prepare–for the Minister's approval–and execute cash programs for the budget and provide up-to-date and complete reports on the cash execution. Training has been provided, operation manuals have been prepared, and hands-on experience has been acquired by the Angolan counterpart team so that outside assistance is no longer needed in the technical aspects of cash management of the budget.

At the time this chapter was written, systems were being developed to register, monitor, and service the public debt, both domestic and external. In addition, the authorities are receiving assistance for better forecasting of budget revenues, which is still unsatisfactory. These forecasts need also to be coordinated with the credit and foreign exchange policies of the National Bank. Foundations have been established for a systematic control of financial relations of the budget with state enterprises, including the receipt of dividends and the payment of subsidies and financing items, notably lending, onlending, and equity participation.

Accounting

During the first tripartite review of the project in May 1991, it was agreed to extend the project to provide long-term technical assistance for the organization of the National Accounting Department, to be created shortly thereafter, and for the introduction of updated accounting methods. This plan aims at strengthening the control of budget execution and generating a consistent set of data on the public finances.

Work on this component of the project began in November 1991, and the Accounting Department is already in operation, although on a provisional and nuclear structure. The classification schemes introduced earlier in the Budget Department and the Treasury were used to compile the 1991 accounts, a task recently completed. Progress already achieved is remarkable, and 1991 is the first date in many years to see adequate bookkeeping undertaken in Angola.

At present, Angola is receiving assistance for the preparation of a new government accounting code, to provide consistent record keeping for the three accounting subsystems, that is, the budgetary (to control budgetary allotments), the financial (to record the cash execution of the budget), and the patrimonial (to keep track of the state's assets and liabilities). Unlike in other countries where public accounting is a timeconsuming and repetitious work, under the system designed for Angola, the Accounting Department, through the use of compatible computer systems, will utilize the same data entered in the Budget and Treasury Departments.

This approach should permit a lightly staffed department to prepare timely accounting reports that will be a valuable source of fiscal statistical information. Indeed, a major goal of the new budgeting and accounting system is to compile government finance statistics consistent with data on the monetary accounts, the balance of payments, and the external debt.

Tax Policy and Administration

The deteriorating trend of the economy, the failure of the state enterprises to generate surpluses, the restrictions on private activities, and the neglect of tax administration contributed to dwindling tax revenues. Public finances have become increasingly dependent on petroleum revenues, which now represent more than two thirds of budget revenue.

The tax system, itself inherited from colonial times, by 1975 was already in need of modernization. Under the MPLA regime, however, the system was only marginally modified, and no innovations were introduced except extirpation of the “national defense tax” and a few other colonial remains. Time made the tax structure increasingly inadequate.

Shortcomings in tax administration were even more serious than obsolescence of the tax system. Lacking a clear role in a centrally planned economy, the tax service was left to languish through nonreplacement of human and natural resources and was isolated from developments in tax administration techniques in market economies. As in the Soviet Union during the 1960s and 1970s, the Angolan tax service lost cadres, equipment, prestige, and enforcement power.

In 1989, IMF experts suggested simplifying the tax system, reducing distortions, and increasing non-oil revenue and assisted the tax authorities in designing a number of these measures and in drafting the corresponding legislation. Indeed, by June 1992 legislation had been enacted introducing the first set of tax measures, which rationalized rates for the individual income tax, included customs duties in the base of the consumption tax levied on imported goods, introduced greater uniformity in consumption tax rates, and replaced the stamp duty levied on some commercial transactions by an equivalent tax based on accounting records and paid monthly.

Other tax measures enacted in July 1992 eliminated the popular resistance tax (a graduated supertax levied on the bases of three other taxes), greatly simplified the rate structure of the gifts and inheritance tax, and significantly reformed the enterprise profits tax, including the assimilation of two other taxes, and the presumptive taxation of small traders. In July 1992, the adoption of self-assessment for all returns-based taxes, the revamping of the system of appeals and penalties, and the introduction of a national taxpayer register also improved the legal framework for tax administration procedures.

The IMF team had stated in its 1989 report that these tax measures, although important, would not make it less necessary to introduce a general sales tax, which still does not exist in Angola. In response to a request from the Angolan authorities, another IMF team visited Luanda in 1991 to design a sales tax to replace the consumption tax. It recommended that a single-rate value-added tax (VAT) be introduced initially at the manufacturing level and on imports and that the consumption tax be continued as an excise on a few goods.

Under the IMF-UNDP project, progress has been made in several areas of tax administration, notably in the development of tax administration skills through formal training. The Tax Department, which was structured according to type of tax, has been reorganized along functional lines. The Department was recognized as a spending unit, and now has its own budget and hence better control over the resources allocated to tax work.

Angola has sought a higher level of taxpayer compliance. The field audit service has been organized and its officers trained, and field audits are now performed as a matter of routine. Penalties, which had been eroded by inflation, have been substantially raised. An effort has been made to identify and recover tax arrears. A system for closer monitoring of the largest taxpayers has been designed and implemented.

In the Customs Department, the project’s assistance did not progress much beyond the diagnostic stage. Here the needs are enormous, as over the years the Customs suffered not only from the deterioration that plagued other areas of the administration, but also a lack of discipline in the port area, where the war brought the overlapping presence of various armed forces and militia. Notwithstanding these difficulties, the Customs has been able to update and implement in 1990 a commodities classification based on the Brussels Nomenclature and, more recently, to simplify considerably the import tariff structure.

Although significant progress has been made in modernizing the tax administration, the results are less striking than in the areas of the budget and the Treasury. Contributing to this slower pace of change were (1) the greater need for skilled personnel in the tax service than in other areas of the Ministry of Finance; (2) the perception by qualified candidates that tax services are not attractive (in terms of salary and prestige); and (3) the incremental character of tax administration reforms and the inertia personnel face in offices used to working in traditional ways.

The Steps Ahead

From its inception, the IMF-UNDP project had assumed that several years of sustained effort would be needed to strengthen the weak financial management and especially to transfer skills. Two years later, the project, which has achieved most of its intermediate goals, should be seen as a work still in progress. The picture emerging from a more recent review of the project shows that important progress has been made in a relatively short time in developing institutional capacity for the design, implementation, and monitoring of fiscal policies.

The Angolan authorities, who have fully participated in the design of the project and who bear primary responsibility for its implementation, shielded the project, to the extent possible, from administrative discontinuity. Indeed, over the past two years Angola has had three Ministers of Finance, all of whom have strongly supported the project.

The following characteristics of the project’s design and implementation were essential for its success. First, a global framework for reform was laid out and agreed on by the three parties involved (the Government, the IMF, and the financing agency). Second, the reform was comprehensive in the Ministry of Finance, with work progressing in parallel in the closely related departments of budget, taxes, accounting, and the Treasury. Third, it was possible to elicit a good degree of cooperation from the National Bank, which was carrying out its own reform. Fourth, the experts assigned to the project were carefully selected, and their work plans incorporated a sequence of actions and clear objectives agreed to by the authorities. In addition, the experts were supervised and provided with guidance before and during their assignment. Fifth, each new stage of assistance was preceded by a detailed assessment of performance in the previous stage.

There is need for further work in the various fiscal areas, which could benefit from continued external technical assistance.

With the basic instruments in place for adequate budget preparation and execution, the tasks ahead include using the budget to improve macroeconomic management and increasing the effectiveness and efficiency of the government sector.9 Projections drawn for the economy under the programming period, including forecasts for production, labor market, and exports and imports, will allow the authorities to set targets for credit expansion and inflation. Taking into account anticipated foreign financing, the central bank can gauge the amount of credit that it can grant to the Government without crowding out the private sector or imperiling the goals set for curbing inflation and building international reserves.

This limit on bank financing to the Government should be the starting point for the budgetary exercise. Other essential factors are a realistic revenue forecast, based on the same production and price paths assumed by the initial macroeconomic exercise, and a set of priorities established by the Government for public expenditure. With these elements in hand, the various ministries can be provided with global limits within which to frame their budget proposals. This will prevent the presentation of unrealistic requests and will make it unnecessary to cut severely appropriation requests during budget preparation. If macroeconomic conditions and government revenues diverge from budget forecasts, by making use of the instruments already available the budget can be revised, say, by midyear.

Measures to improve the quality (that is, the effectiveness and the efficiency) of public expenditure have been indicated above, notably better articulation of the state budget with the plan and the foreign exchange budget, improved revenue forecasts, and setting up of mechanisms for screening (including the application of project appraisal techniques), monitoring the execution of, and evaluating public investment projects. To this list one should add the establishment of controls on personnel expenditure, which has increased substantially for some years, placing a heavy burden on the budget. More generally, there is a need to improve the ability to manage public expenditures and to analyze their macroeconomic and distributive effects. Progress in this area could be achieved, for example, by strengthening the human resources and the analytical capability of the Economic Studies Bureau of the Ministry of Finance.

The political and economic reorientation of Angola tends toward decentralization of government decisions through assignment of greater fiscal responsibilities to the provincial and local governments. As this will clearly influence how the budget is prepared and executed, the next steps in the promotion of improved financial management must include disseminating the technical knowledge already absorbed at the central level to the various regions and assigning to the provinces various tasks currently performed in the various departments of the Ministry of Finance. The Treasury might also need to establish offices in the main provinces.

The system for managing the public debt is still being developed in the Treasury, and, although some results are apparent, much more work needs to be done. Design of the system for financial monitoring of stateowned enterprises is at an early stage. This system should be fully developed even before privatization is carried out.

The Accounting Department is operating on a pilot basis, and substantial work has yet to be done to consolidate it while integrating its procedures with those of the Budget Department and the Treasury to take full advantage of the progress in computerization by those departments. As this is achieved, the Accounting Department should be strengthened in its control function, especially its capability to perform audits and enforce accountability. The Accounting Department has also to address the reconciliation of revenue statistics provided by the tax and Customs administration against the amounts recorded in the Treasury account.

The Accounting Department, as well as the other departments in the Ministry of Finance that are directly benefiting from technical assistance, have been structured or restructured on the basis of executive orders. In order to provide them with a stable legal basis, the organizational reform of the Ministry must be completed and the corresponding legal instruments must be enacted.

The achievements in tax policy and administration should not lead to complacency, as new efforts are needed to continue modernizing the tax structure and the tax administration. This is especially important for the VAT, which the authorities plan to introduce. An adequate administration of the VAT will require fast and automated processing, supplemented by agile desk and field audits. Revamping of tax administration procedures, already advanced at the central offices of the Tax Department, needs to be disseminated to the regional and local offices. Finally, a decisive effort is needed in the Customs area to improve procedures, especially in handling the collection of the VAT on imported goods. Computerization of the Customs will also provide reliable information on imports and exports.

Technical assistance of the type undertaken by the IMF-UNDP project for Angola is intended to create institutions to make the adoption of wellinformed economic policies possible. If these are not used effectively, the effort will be wasted. Angola is going through a difficult transition, both economic and political, full of risks and possibilities. The new government emerging from democratic elections will have over previous governments the advantage of institutions for financial management. The newly developed instruments and institutions are expected to support sustainable economic policies.

Isaias Coelho is a Senior Economist in the European II Department. At the time the paper was written, he was a Senior Economist in the Fiscal Affairs Department.

Defense expenditures have exceeded the combined expenditure in education, health, and social assistance.

The exchange rate had been kept unchanged since independence in 1975. As a result, the ratio between the parallel and official rates came to exceed 100:1.

Until 1991, only one political party was allowed to operate, the People’s Movement for the Liberation of Angola-Workers’ Party (MPLA).

In 1991, computer specialists from the IMF advised Angola on the computerization strategy, to ensure systems compatibility in the Ministry of Finance’s computerization program.

While the state budget covers one (calendar) year, the foreign exchange budget has been traditionally prepared for shorter periods. Of course, in the first years of incorporation into the state budget, the forecasts for expenditures in foreign exchange are highly tentative.

When exchange markets are fully liberalized in Angola, with the budgetary sector behaving as a net buyer or seller of foreign currency, the indication of the budget’s foreign currency component will help to assess the impact of exchange rate variations on public expenditure.

In fact, a double account, for the separate recording of transactions in domestic and foreign currency.

The Government now pays interest on National Bank financing.

Although this terminology is somewhat pedantic, it is useful to distinguish between effectiveness, which relates to the choice of instruments to achieve a specified objective (for example, the choice among competing expenditure projects), and efficiency, which pertains to the more economical way of implementing a given project, that is, reaching the specified result with the minimum cost or, alternatively, maximizing the results (measured, for example, in terms of output) for a given level of costs.

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