Statement by the IMF Staff Representative

The staff report for the 2007 Article IV Consultation on Angola highlights economic performance, macroeconomic stability, and fiscal policy. Growth in the medium term will rely increasingly on the non-oil sector, where reforms to promote private sector development will be critical to offset a potential loss in competitiveness from an appreciating real exchange rate. A key challenge is to ensure that political pressure to scale up public spending does not undermine macroeconomic stability. Lower output growth and oil revenues than envisaged in the baseline scenario could jeopardize public and external debt sustainability.

Abstract

The staff report for the 2007 Article IV Consultation on Angola highlights economic performance, macroeconomic stability, and fiscal policy. Growth in the medium term will rely increasingly on the non-oil sector, where reforms to promote private sector development will be critical to offset a potential loss in competitiveness from an appreciating real exchange rate. A key challenge is to ensure that political pressure to scale up public spending does not undermine macroeconomic stability. Lower output growth and oil revenues than envisaged in the baseline scenario could jeopardize public and external debt sustainability.

The following information has become available since the issuance of the staff report for the 2007 Article IV consultation with Angola. The new information does not alter the thrust of the staff appraisal.

1. The expansion of oil production in 2007 has not materialized at the rate initially anticipated by the authorities. Reflecting this, the government revised downward its 2007 oil production from 736.7 million barrels to 626.6 million barrels in its mid-year review of the 2007 budget. The revision is in line with staff projections in the staff report. The authorities explained that the revision in oil production reflects technical difficulties in getting equipment to the production platforms. The projected output for the non-oil sector remained unchanged. The authorities therefore project real GDP to expand by 19.8 percent in 2007, compared to 31.2 percent in the original budget.

2. The 2007 revised budget further underscores the importance of framing fiscal policies in a medium-term context. Following the downward revision of the projected oil output in 2007, the government also lowered its revenue target for 2007 from 37.4 percent of GDP to 35.5 percent of GDP. However, outlays were increased from 40.7 percent of GDP to 44.2 percent of GDP in the revised budget, including a 4 percentage point increase in the capital budget relative to the original budget. If the authorities fully implement the revised budget, which in staff’s view is unlikely because of continuing implementation bottlenecks, the non-oil primary deficit would widen to 75.4 percent of non-oil GDP (10 percentage points higher than in the original budget). The price of oil per barrel was also raised from US$45 to US$52 in the revised budget.

3. Inflation in July remained at around 12 percent (year-on-year), unchanged from the end of 2006. The government kept the year-end inflation target at 10 percent, as in the original budget. The exchange rate has remained stable following revaluation in May 2007 from Kz 80 to Kz 75 against the U.S. dollar.

4. The National Bank of Angola (BNA) contained base money growth to about 10 percent during the twelve-month period to July 2007 through interventions in the foreign exchange and domestic money markets (the sales of BNA bills grew by about 70 percent of the beginning-of-the-year monetary base). Broad money expanded at an annual rate of about 50 percent in June.

Angola: 2007 Article IV Consultation: Staff Report; Staff Supplement and Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Angola
Author: International Monetary Fund