Angola
Fourth Review Under the Stand-By Arrangement, Request for Waivers of Nonobservance of Performance Criteria, Request for Waivers of Applicability of Performance Criteria, and Request for Modification of Performance Criteria.
Author: International Monetary Fund
Publication Date:
15 Feb 2011
eISBN:
9781455217724
Language:
English
Keywords:
ISCR; CR; authority; end-December data; December; consumer price inflation; accounts payable; clearance program; broad money; debt management; payments arrears; Oil prices; Global
Download PDF (849.1 KB)

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.

Abstract

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.

I. The Context

1. The Angolan economy was badly buffeted by the sharp drop in global oil prices that began in late-2008. Oil is central to the Angolan economy, contributing 75 percent of government revenues and 96 percent of merchandise exports, and the erosion of oil revenues destabilized both the public finances and the balance of payments. The budget moved into a sizeable deficit; interest rates rose sharply; and the exchange rate, defended by a mix of a reserve depletion and rationing of foreign exchange, came under severe pressure. Facing sizeable financing needs, the authorities began to default on payment obligations to domestic suppliers, undermining the financial position of these entities.

2. The authorities initiated a comprehensive adjustment program in late-2009, supported by a Stand-By Arrangement (SBA) with the Fund. Key measures taken included: a sharp fiscal adjustment, focused on expenditure reduction;2 reform of the foreign exchange auction system, which led to significant depreciation of the kwanza; maintenance of a tight monetary policy to support the exchange rate; intensified monitoring of commercial banks to safeguard financial sector stability; and a substantial package of reform measures, focused on improving public financial management and the internal governance of the central bank.

3. The authorities’ program has achieved significant success, helped in part by some recovery in oil prices, but also by solid implementation of key program measures. The non-oil primary deficit (NOPD), a key fiscal indicator, was cut sharply in 2009 and again in 2010; monetary policy provided support for the exchange rate, while reserves were being rebuilt; the commercial banks appear to have weathered the storm, albeit with some damage to the quality of loan portfolios; and significant reform measures have been completed or set in motion.

Text Table 1.

Angola: Key Economic Indicators, 2008–11

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Gross international reserves as months of next year’s imports of goods and services.

4. But important challenges need to be addressed to complete the stabilization process. The large stock of government payment arrears accumulated in 2008-09 needs to be settled. Public investment, cut sharply since 2008, needs to be raised to address the country’s major infrastructure deficiencies. Reserves remain below pre-crisis levels and further accumulation is needed to provide a solid buffer against oil price volatility. Inflation, drifting upwards in response to oil price adjustments, needs to be reined in. And the government’s longer-term reform program needs to be pushed forward.

II. Recent Developments and Outlook

5. Macroeconomic performance during 2010 has been mixed, partly reflecting the effects of the sizeable adjustment measures taken:

  • GDP is expected to rise by some 2.3 percent in 2010, a combination of a 1.3 percent drop in oil production (hit by temporary production difficulties) and a projected 4.7 percent increase in non-oil GDP, a very sluggish pace relative to pre-crisis trends. Contributory factors to slowing non-oil growth included the contractionary impact of fiscal adjustment and the burden of government payments arrears on local firms.

  • Inflation has risen slightly in recent months, following a 50 percent increase in gasoline prices in September 2010. Twelve-month inflation reached 16.1 percent in October, up from 13.5 percent a year previously—a modest increase given the fuel price adjustments and the sizeable currency depreciation in the final quarter of 2009.

  • The budget has moved into surplus, with the full-year surplus likely to be on the order of 7 percent of GDP. Expenditures have been running well below (revised) budgeted levels due to slow execution of capital expenditures, but staff expects some pick-up in recorded outlays late in the year. While stronger-than-programmed oil receipts have contributed importantly to the improved budgetary position, the non-oil primary deficit looks set to have declined by some 7 percentage points of non-oil GDP from its 2009 level, underscoring the scale of domestic fiscal adjustment.

  • The strengthening of the fiscal position provided space for the clearance of some of the arrears accumulated in 2008-09. Having initiated a process of verification of these arrears, the authorities had, by end-year, cleared some 50 percent of the initial stock of verified arrears (about US$3.6 billion out of US$6.8 billion, including all arrears to “small” suppliers).

  • The exchange rate has been broadly stable over the course of 2010, fluctuating within a range of Kz 90 to 93.5 per U.S. dollar. The authorities continue to closely manage the exchange rate, but have moved to improve the workings of the foreign exchange auction, including by standardizing the timing and length of the auction window. The parallel market premium is running at around 5 percent.

  • Foreign reserves are being rebuilt, with gross international reserves set to increase by at least US$3 billion over the full year; the expected improvement in the import coverage ratio is more modest, partly reflecting fluctuations in import levels.

  • Broad money growth has been kept in check, with the 23 percent expansion now anticipated for 2010 being slightly lower than original program targets;3 private credit growth has been slightly higher than originally programmed. With restoration of confidence, short-term interest rates have eased significantly in recent months without generating renewed exchange rate pressures.

  • Three end-September quantitative performance criteria—on the accumulation of new domestic payments arrears, central bank net domestic credit, and net credit to government extended by the banking system—were missed. The causes are discussed below (¶24).

6. The external environment for Angola in 2011 appears broadly favorable, with oil prices expected to increase on 2010 levels, but the global economic outlook is characterized by significant uncertainty. The policy framework agreed with the authorities takes a conservative stance on oil prices, setting the oil price some US$5 per barrel below the October WEO projections, adjusted for the modest quality discount on Angolan oil.4 The agreed fiscal framework effectively locks in the sizeable fiscal consolidation achieved in 2010, with the non-oil primary deficit increasing only marginally relative to non-oil GDP. While there is likely to be little direct demand stimulus from budgetary policies, the return of more stable macroeconomic conditions and the settlement of remaining government payments arrears should provide a solid boost to the non-oil sector:

  • GDP is projected to rise by some 6½ percent in 2011, with oil sector growth (from temporarily deflated levels in 2010) amounting to 3.8 percent and non-oil sector activity set to rise by some 8.1 percent—much closer to trend growth rates.

  • Inflation is expected to decline gradually in 2011, reflecting continued tight control of monetary growth and the eventual dropping out of the large 2010 fuel price increases from the index.

  • The balance of payments position is projected to provide room for reserve accumulation on the order of US$1.7 billion—with significant upside potential if October WEO oil price projections are realized or exceeded.

  • Given the conservative oil price assumptions, the risks to the macroeconomic framework have an upside bias. The macroeconomic framework may need to be adjusted in due course if a large oil revenue windfall materializes.

III. Policy Discussions

7. Policy discussions for the review focused on: a) the 2011 budget; b) the handling of the arrears problem; c) monetary and exchange rate policies; and d) key elements of the authorities’ administrative and policy reform agenda.

A. Fiscal Policy

8. Both the authorities and staff favored the adoption of a conservative oil price assumption in setting budgetary policy. With the authorities committed both to further accumulation of foreign reserves and to reversing the sharp squeeze on public sector investment in 2009-10, there was active discussion of the quantitative trade-offs involved in pursuing each objective, along with dialogue on the scope for creating fiscal space through measures elsewhere in the budget.

Text Table 2.

Angola: Budget Developments, 2008-11

(Percent of non-oil GDP)

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Adjusted for changes in classification regarding oil-related spending.

  • Staff called for a more gradual build-up in public investment than proposed by the authorities, citing the adverse impact of additional domestically-financed investment on imports and reserve accumulation; the authorities underscored the need to push ahead with small-scale investment programs in the provinces that would have high economic payoffs. The final agreement was that the 2011 budget would adopt a cautious stance, largely following the staff proposal; but that this position could be revisited in mid-year if oil prices evolved more favorably than assumed.5

  • Staff pressed the case for a further reduction in fuel subsidies during 2011, arguing that the distributional impact of the subsidies was quite regressive. The authorities accepted this point, but emphasized that there would be strong public resistance to another large fuel price increase after the price adjustments in September 2010.

  • Staff inquired as to the scope for raising non-oil revenues to generate fiscal space for higher investment. The authorities noted that they were undertaking a major overhaul of the tax system that would boost non-oil revenues over the medium term, but the reforms would take time and had only recently been set in motion. The political leadership has recently ordered an intensification of tax enforcement in Luanda to reduce tax evasion; officials expected significant revenue gains from these efforts, but deemed it premature to build revenue gains into the 2011 budget.

9. The authorities and staff agreed on the merits of adopting some form of fiscal rule (or principle) that would ensure smoothing of expenditure over the oil price cycle, while providing for a gradual build-up of resources in some form of sovereign wealth or stabilization fund. The authorities were unconvinced of the case for anchoring fiscal policy around a rule that smoothed inter-temporal consumption from oil wealth (e.g. setting a target for the non-oil primary deficit), arguing that investing today in infrastructure and other growth-supporting projects would provide greater benefits for future generations than saving surpluses. That said, they saw solid merit in following some form of structural balance rule that would smooth spending levels over the oil price cycle, and asked staff to prepare a detailed proposal for discussion by the time of the Article IV Consultation and 5th review.

B. Domestic Payments Arrears

10. The government’s arrears clearance program is well underway. As a first step, the government during the third quarter made cash payments to clear some US$2.7 billion (including all "small" claims) of the US$6.8 billion in 2008-09 payments arrears that had been verified; a further US$0.9 billion was cleared through cash payments late in the fourth quarter. During November, broad understandings were reached with the holders of the remaining claims (with details to be finalized in January), committing the government to clear the remaining arrears in the first quarter of 2011, via a mix of cash and securitizations.6

11. The quantitative performance criterion on the non-accumulation of domestic payments arrears was not met as of end-September. There was a build-up of accounts payable linked to the 2010 budget of some US$1.2 billion through end-September, with the increment during Q3 amounting to some US$230 million.7 The authorities noted that accumulation of accounts payable over the course of the year is not abnormal: budgetary law specifies that such amounts are deemed to be in arrears only after the budget year has closed. The authorities cleared the bulk of the stock of payables accumulated through end-September 2010 by January 7, 2011, with the remainder to be cleared in the coming weeks. Payables accumulated during the final quarter of the year are to be cleared by end-March 2011 (as is allowed under budget law).

12. The authorities informed staff that information on the stock of accounts payable accumulated during the first half of the year reported at the time of the 2nd and 3rd reviews was inaccurate, in large part because it erroneously included accounts payable relating to a state enterprise. The stock of payables accumulated during the first semester amounted to Kz 89 billion (some US$1 billion), rather than the Kz 165 billion (US$1.8 billion) previously reported.

13. The authorities are confident that the legislative and regulatory changes introduced during the third quarter of 2010 will ensure that the incurring of new spending commitments will remain under the tight control of the Ministry of Finance. The key measure taken has been the introduction of quarterly financial plans for line ministries that constrains outlays by each ministry to a ceiling agreed in advance with the Ministry of Finance: the line ministry can enter into new payment commitments only if there is space in its financial plan. These quarterly plans constrain initiation of budget-approved projects when finances are tight (and hence override the authorization provided in the budget law).

C. Monetary, Exchange Rate, and Financial Sector Policies

14. The pace of growth of broad money is somewhat below program expectations. The expansion of the monetary base has been significantly below program targets, reflecting active sterilization operations by the BNA, which doubled the issued stock of central bank bills during the first nine months of 2010. The sale of BNA bills required was magnified by the Treasury’s decision to pay off its short-term debt over the same period. The authorities agreed that the burden on the BNA needed to be reduced, and have since resumed T-bill sales in November both to finance upcoming treasury outlays and to allow the BNA run down its outstanding stock of paper (MEFP ¶12).

15. Staff and the authorities agreed on a monetary program for 2011, framed around the objectives of gradually reducing inflation while meeting the program objective of achieving an increase in gross international reserves of US$1.7 billion. The working assessment is that monetary growth on the order of 22 percent is aligned with these objectives, and targets on BNA net domestic credit are set accordingly. Given uncertainties around the scope for financial deepening in 2011, it was agreed that the program would be constructed on conservative assumptions and could be revisited in mid-year (MEFP ¶10).

16. The BNA views maintenance of broad exchange rate stability as a key support for market confidence and financial sector stability, while also recognizing the need for adjustment of the value of the kwanza should there be a significant shift in market fundamentals. The BNA has moved to improve the workings of the foreign exchange auction, by standardizing the timing for conducting the auction and improving its capacity to forecast auction demand, and will continue to use its outlier policy sparingly (MEFP ¶11).8

17. Angolan banks have not been severely impaired by the financial instability of thepast two years and the sector maintains an adequate capital buffer. But nonperforming loans (NPLs) have been rising during 2010 from 2.6 percent at end-2009 to 7.1 percent by end-September 2010, in part reflecting the liquidity difficulties of companies affected by government payment arrears. Settlement of these payments arrears should, indirectly, help improve the NPL situation, but the evolution of NPLs will need to be kept under close review. New prudential measures to contain risks to the banking system are described in MEFP ¶14. The planned FSAP, set to begin in March, provides the opportunity to undertake a comprehensive assessment of the financial system.

D. The Administrative and Policy Reform Agenda

18. Discussions on the authorities’ reform agenda focused on four elements: a) public financial management; b) tax reform; c) improving the business environment; and d) transparency and safeguards issues.

19. On public financial management: The debt management unit is being staffed, and it is expected that a debt management strategy will be finalized, with assistance from a resident advisor, by end-March 2011. The AfDB-assisted project to strengthen project appraisal capacity and monitoring has not yet been approved by the AfDB Board; the authorities expect it to be underway by the beginning of February 2011 and delivering usable analysis and input to the 2012 budget formulation process. Legislation to establish a framework for public-private partnerships is to be passed in the coming months, and internal capacity to manage such engagements is being built. The authorities are also developing a new framework for enhancing oversight of public enterprises, with draft legislation to be submitted to the National Assembly by end-March 2011 (MEFP ¶17).

20. On tax reform: The authorities have commenced a multi-year overhaul of the tax system (both policies and administration). Draft legislation modernizing the legal framework is with the National Assembly. An international management consultancy has been engaged to help design a reform program and a road-map for implementation; a time-bound action plan is to be submitted to the cabinet by end-June 2011 (MEFP ¶18).

21. On the business environment: Angola’s environment for doing business is rated poorly, and the authorities recognize that substantial reforms are needed to provide the conditions required to facilitate diversification away from over-reliance on hydrocarbons.9 The authorities explained that some reforms were underway, but underscored that dramatic change could not be achieved quickly. Staff urged the authorities to use the IFC Doing Business Report for Angola as a valuable diagnostic of weaknesses, and develop an appropriately-sequenced reform strategy on the basis of that diagnostic (MEFP ¶20).

22. On transparency measures: The authorities explained that the technical/capacity challenges involved in publishing quarterly reports of budget execution, including the quasi-fiscal operations of Sonangol on behalf of the government, had been underestimated and did not expect to meet this requirement before mid-2011; they noted that a first semester 2010 report on budget execution had been sent to the National Assembly and would be published in due course. Sonangol’s 2009 audit has recently been published, as were (for the first time) the audits of a further three public enterprises. The draft legislation on oversight of public enterprises envisages all enterprises being subject to annual external audits that would be published (MEFP ¶17 and 21).

23. On BNA safeguards measures: Implementation of the recommended measures has taken longer than envisaged, but the BNA has made steady progress; one outstanding action is the reconstitution of the BNA Audit Board, now expected to be completed by end-January. The BNA expects that the external audit of its 2010 financial statements will be completed by end-June 2011, and published shortly thereafter: the timeline is somewhat longer than for the 2009 audit because of the appointment of a new external auditor (MEFP ¶22).

IV. Program Monitoring and Design Issues

24. Three performance criteria were missed at end-September, in part reflecting weaknesses in the technical specification of the criteria and in part the impact of the government arrears clearance program on government finances:

  • Regarding the domestic arrears accumulation criterion, the mechanics of the government payments and information system cannot readily track the evolution of arrears as specified in the Technical Memorandum of Understanding (TMU).10 The authorities are tracking the evolution of accounts payable (which need not be in arrears, in the sense of breaching payment conditions in specific contracts); a zero target on the quarterly accumulation of accounts payable is problematic, given the ebb and flow of government operations over the year. Staff is therefore proposing a modification of the definition of the performance criterion to cover the accumulation of accounts payable, putting a ceiling on the scale of such payables over the course of the budget year (see the modified TMU, attached). The authorities have cleared the stock of accounts payable accumulated as of end-September (see ¶11 above).

  • Regarding the ceiling on banking system credit to government, the performance criterion at end-September was missed by some Kz 70 billion, having been met by a modest margin at end-June. The turn-around in performance does not reflect a weak fiscal position—the NOPD is set to end the year some Kz 350 billion below program—but rather the financing effects of the government’s Kz 227 billion cash arrears clearance program during the third quarter. Arrears clearance on this scale in this quarter was not anticipated when the original financial program for the year was designed.

  • Regarding the ceiling on net domestic credit of the BNA (NDC), there is a technical weakness in the specification of NDC in that increased open market operations to sterilize liquidity are not reflected in a contraction in NDC of the BNA. Staff proposes to rectify this defect by re-defining NDC to include (as a negative entry) the stock of BNA securities outstanding. The NDC as currently measured was Kz 160 billion above the adjusted target (pushed up in part by the large arrears clearance operation, along with the running down of the stock of government bills outstanding), but the liquidity impact of this overshooting was contained by the active sterilization operations of the BNA. Twelve-month base money growth through end-September was only 3 percent.

  • Formal waivers for the nonobservance of end-September quantitative performance criteria are not required, given that slippage of Board consideration of the review into 2011 implies that the governing performance criteria are now those pertaining to end-December 2010. Staff considers that waiver requests, were they needed, would have been warranted, for reasons laid out above and in the authorities’ letter of intent.

25. Staff supports the waivers requested in regard to the end-December targets:11

  • Waivers are being requested for likely nonobservance of the ceilings on arrears accumulation, on central bank NDC, and on banking system credit to government.

  • There is a significant risk that the “zero arrears accumulation” ceiling has not been observed. The authorities cleared some 60 percent of the end-September stock of accounts payable by end-December, but this decline in accounts payable could well be more than offset by the size of the normal float at end-year—which would result in nonobservance of the performance criterion.12 Staff supports the granting of a waiver on the grounds that the authorities are taking corrective actions: settling the accounts payable built up in the first three quarters of 2010 to contain the stock of accounts payable; implementing the new financial control system to contain commitments by line ministries (MEFP ¶8); and committing to clear all accounts payable deriving from the 2010 budget by end-March 2011 (as required by budget law).

  • Staff projects that the ceiling on net credit of the banking system to the government has been missed, by a sizeable margin, perhaps by as much as Kz 180 billion. As noted above, this is not attributable to weak fiscal performance—the NOPD is well below program targets—but rather results from unanticipated shifts in the composition of government financing; higher-than-programmed arrears clearance (which shifted government debt from the nonbank to the banking sector) and an unanticipated shortfall in non-bank financing.13 The staff supports the granting of the waiver on the grounds that the deviation was temporary, can be attributed in large part to higher-than-programmed arrears clearance (a benign development), and that above-the-line fiscal performance was much stronger than programmed; remedial measures being taken include the explicit incorporation of arrears clearance measures in the financial program, along with deeper analysis of non-bank financing to enhance forecasting and management capacity.

  • Staff projects that the ceiling on central bank NDC at end-December has been missed by a sizeable margin, perhaps by as much as Kz 160 billion. As noted above, the ceiling is poorly defined and a revised specification is being proposed. Staff supports the waiver request on the grounds that the breach of the ceiling was temporary, and due in good part to larger-than-expected arrears clearance in 2010 (a welcome move); that the monetary impact of the nonobservance of the ceiling was fully contained by BNA operations; and that, as a remedial measure, the Ministry of Finance has substantially expanded its T-bill operations, thus containing the drawdown in government deposits (MEFP ¶12).

  • The quantitative performance criteria on external debt contracted or guaranteed by the central government and on the non-accumulation of external arrears are continuous for the duration of the Stand-By Arrangement. Staff expects that both performance criteria have been observed and thus no waivers are requested.

  • For the other performance criterion on the ceiling on usable net international reserves, staff supports the request for a waiver of applicability as the relevant data are not available, program performance has been strong, and there is no clear evidence this performance criterion has not been met.

26. There has been a program ceiling on the contracting or guaranteeing of externaldebt by the central government, set at US$6 billion; this ceiling has been met to date, andis likely to be met by a margin exceeding US$4 billion at end-year. While the authoritiesexpect that the contracting of external loans will pick up significantly as the investment crunch comes to an end, it was agreed that the ceiling for 2011 would be reduced to US$4 billion.

V. Staff Appraisal

27. Overview. Macroeconomic stabilization has been largely achieved some 14 months into the adjustment program supported by the SBA. The exchange rate has stabilized and interest rates are declining from elevated levels; foreign reserves are being steadily rebuilt; and inflation has been largely held in check. Key to these achievements has been a major fiscal adjustment during 2009-10, which saw the non-oil primary deficit cut by some 24 percentage points of non-oil GDP in 2009 and a further 7 percentage points in 2010. But the recovery process from the oil price collapse in late-2008 is still incomplete: domestic payments arrears remain to be cleared; the sharp cut in public investment outlays needs to be judiciously reversed; and inflation needs to be brought down gradually into single digits.

28. Fiscal policy. Significant expenditure restraint took place in 2010, especially in the first half of the year as the government sought to limit outlays to available financial resources—a pragmatic response to the large build-up of arrears during 2008-09. Capital spending bore the brunt of this restraint, and will now need to be gradually increased as resource availability allows. Staff welcomes the prudently-framed 2011 budget, which makes room for increased capital outlays, but regrets the fact that more fiscal space could not have been constructed by better containing current outlays, particularly the poorly-targeted fuel price subsidies. Budgetary revenues from oil have strong up-side potential: the program envisages that additional resources would go to reserve accumulation, although the spending envelope may be revisited at mid-year, when there is solid confirmation as to the strength of oil prices. Any modification to the budget at that juncture will need to avoid providing significant pro-cyclical stimulus.

29. Clearing domestic arrears. With space for arrears clearance having been made by the conjunction of spending restraint and the pick-up in oil prices, the authorities have appropriately made arrears clearance an important priority and have made a large down-payment towards clearance of the 2008-09 arrears. The authorities’ intention to clear or regularize all such arrears by end-March 2011 is welcome, and should be implemented on schedule. Accounts payable arising from execution of the 2010 budget rose significantly through September; the stock will need to be kept within reasonable limits over time and be cleared within the timeframe set by the budget law.

30. Fiscal reforms. The ongoing development of the debt management unit is welcome; the unit now needs to develop a debt management strategy that can find support within the government. The delay in pressing ahead with the project monitoring and appraisal framework is unfortunate, but staff hopes that early approval of the African Development Bank-supported project will allow implementation to proceed soon. The multi-year overhaul of the entire (non-oil) tax system is a vital medium-term measure: the authorities need to press ahead with development of a concrete action plan, and draw on international best-practice in fleshing out policies and institutional design.

31. Monetary and exchange rate policies. Monetary growth has remained within program targets, and it will be important that tight control on monetary expansion be maintained in 2011. With the foreign exchange market having normalized, as reflected in the narrowing of parallel market spreads towards pre-crisis levels, it will be important that the BNA manage the exchange rate using market tools—intervention operations or monetary policy adjustments—rather than rely on micro-management of the foreign exchange auction. Sparing use of the outlier policy is important if the auction market is to provide information on emerging pressures on the Kwanza.

32. Financial sector issues. Given that sizable exchange rate movements could follow a significant shift in fundamentals, the BNA is appropriately moving to tighten the regulatory environment for foreign currency lending and to further constrain bank net open positions. The upcoming FSAP provides an excellent opportunity to undertake a fundamental reassessment of the policy framework for ensuring financial sector stability, and also to identify measures to deepen the financial sector while expanding access to financial services.

33. Transparency and safeguards issues. Staff welcomes the publication of the 2009 external audits of Sonangol and three other public enterprises, along with the plan to conduct and later publish a 2010 external audit for Endiama (the state diamond producer). Delays in publishing quarterly budget reports that include quasi-fiscal operations have been attributed to capacity constraints; staff urges that these constraints be eased in a timely manner. The implementation of agreed safeguards measures, albeit delayed, represents a significant step towards strengthening internal governance at the central bank; it will be important now to move speedily toward reconstituting the BNA audit board.

34. Risks. The main risk to the authorities’ program is a significant drop in world oil prices. Consistent with the authorities’ practice, the budgetary framework is based on conservative oil price assumptions, providing a large buffer against an easing of oil prices from current market levels.

35. Recommendation. The Angolan authorities have achieved significant success with their stabilization efforts to date, but now need to press ahead to re-build policy buffers, to clear sizeable domestic payments arrears, and to continue their reform and modernization program. Staff recommends completion of the fourth review under the SBA and supports the granting of the requested waivers.

Figure 1.
Figure 1.

Angola: Real Sector and Fiscal Developments

Citation: IMF Staff Country Reports 2011, 051; 10.5089/9781455217724.002.A001

Sources: Angolan authorities and IMF staff estimates.
Figure 2.
Figure 2.

Angola: Exchange Rate and Monetary Policies

Citation: IMF Staff Country Reports 2011, 051; 10.5089/9781455217724.002.A001

Source: Angolan authorities.Sources: Angolan authorities and IMF staff estimates.1 Credit growth rate from October 2009 are inflated by significant exchange rate depreciation.
Figure 3.
Figure 3.

Angola: External Sector Developments

Citation: IMF Staff Country Reports 2011, 051; 10.5089/9781455217724.002.A001

Sources: Angolan authorities and IMF staff estimates.
Table 1.

Angola: Main Economic Indicators, 2007–11

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Sources: Angolan authorities, and IMF staff estimates and projections.

In months of the following year’s imports

Table 2a.

Angola: Fiscal Operations of the Central Government, 2008-111

(Billions of kwanza)

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Source: Angolan authorities, and IMF staff estimates and projections.

In 2010 Angola made a classification change to some oil related items; budget balances are not affected. Revenues are recorded on a commitment basis and expenditures are recorded on a cash basis.

Table 2b.

Angola: Fiscal Operations of the Central Government, 2008-111

(Percent of GDP)

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Source: Angolan authorities, and IMF staff estimates and projections.

In 2010 Angola made a classification change to some oil related items; budget balances are not affected. Revenues are recorded on a commitment basis and expenditures are recorded on a cash basis.

Table 2c.

Angola: Fiscal Operations of the Central Government, 2009-111

(Cumulative, Billions of kwanza)

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Source:Angolan authorities, and IMF staff estimates and projections.

In 2010 Angola made a classification change to some oil related items; budget balances are not affected. Revenues are recorded on a commitment basis and expenditures are recorded on a cash basis.

Table 3.

Angola: Balance of Payments, 2008-11

(Millions of U.S. dollars)

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Source: National Bank of Angola; and IMF staff estimates and projections.

The net direct investment is largely affected by cost-recovery outflows by oil companies which depend on their oil profits.

Mainly clearance of arrears.

In months of next year’s imports.

Table 4.

Angola: Monetary Authorities, 2008–11

(Billions of kwanzas; unless otherwise indicated)

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Sources: National Bank of Angola (BNA) and IMF staff estimates and projections.

In previous staff reports, reserve money was defined to be the sum of reserve money as defined here plus BNA bills held by commercial banks. Similarly, domestic credit did not include BNA bills held by commercial banks In previous staff reports.

Table 5.

Angola: Monetary Authorities, 2008–11

(Billions of kwanzas; unless otherwise indicated)

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Sources: National Bank of Angola (BNA) and IMF staff estimates and projections.
Table 6.

Angola: Illustrative Medium-Term Scenario, 2009–15

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Sources: Angolan authorities, and IMF staff estimates and projections.

In months of the following year’s imports.

Table 7.

Angola: Banking System Financial Soundness Indicators 2003–10

(Percent, end-of-period)

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Source: BNA’s Banking Supervision Directorate.

As of August 2010.

Table 8.

Angola: Indicators of Capacity to Repay the Fund, 2009–16

(Million of SDRs, unless otherwise indicated)

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Source: IMF staff estimates.