Recent Economic Developments And Medium Term Outlook

Angola’s economic performance has been impressive in the recent period. While growth moderated in the oil and diamond sectors in the last two years due to external shocks and operational concerns, it remained robust in the non-extractive sector, particularly in agriculture, manufacturing, construction, transportation, and services. Real GDP growth is expected to accelerate in 2012 to about 9.8 percent but the exposure to the external financial and economic environment remains a source of concern. End period inflation declined to about 11 percent in December 2011 from 15.3 percent a year earlier, particularly due to lower than envisaged demand pressures. Net International Reserves (NIR) more than doubled from 2010 figures reaching about 8 months of imports of non-oil goods and services. The recovery in oil and diamond exports in 2011 led to further improvement in the external current account surplus.

The near to medium-term economic prospects remains favorable. Developments in the advanced economies, particularly the demand for crude oil, trends in oil prices, and the levels of international food and commodity prices strongly influence the Angolan medium-term prospect. Real GDP growth in the medium term will be driven by the boom of the non-mineral economy and contribution of the newly established infrastructures, lower costs of power and water supply, and improved transportation networks. New production of liquefied natural gas will also further increase the country’s financial capacity.

Fiscal Policy

My Angolan authorities intend to continue reducing unpredictability in oil revenue transfers and enhancing accountability in public spending. To this end, the corrective actions undertaken have contributed to the phasing out of the quasi-fiscal activities of the state oil company, Sonangol, and the gradual inclusion of these activities in the budget. Steady progress has been made in monitoring and reconciling oil revenue flows to the treasury and my authorities have submitted to staff the first draft of the 2007 – 2010 reconciliation report. This has helped in resolving, to a large extent, the discrepancies and strengthened the integration of the quasi fiscal operations in the budget. In addition, my authorities intend to design and implement in 2013 fiscal policies with a medium term outlook to avoid boom-bust cycles given the fluctuations in international oil prices that require sudden adjustments in macroeconomic policies. The aim of a multi-year fiscal framework is to ensure that fiscal and external sector positions remain sustainable while improved management of oil revenues allows a scaling-up in public investment.

In the same vein, efforts to strengthen the Oil for Infrastructure Fund are being undertaken with a view to enhancing the public financial investment capacity. My authorities also continue to strengthen tax administration and subsidies reforms in order to rebuild fiscal buffers and make more resources available to priority social and developments needs. They maintain that an increase in infrastructure and social sector spending is needed to enhance efficiency and competitiveness of the economy and further reduce poverty. The authorities are considering the merits of moving to a different fiscal anchor, the non-oil current primary balance to better accommodate capital expenditure and would like to have further discussions going forward.

According to the DSA, Angola’s public debt remains sustainable. The authorities embarked in 2010 on a package of structural measures with the aim of enhancing their debt management capacity and improving debt statistics. These measures have allowed the creation of the debt management unit at the Ministry of Finance which is currently provided with clear channels of communication, independent access and reporting lines to the economic ministries. In addition, a medium-term debt strategy is in preparation and will be expeditiously integrated in the budget in order to ensure that the macroeconomic policies are consistent with the 2001 IMF Government Finance Statistics Manual.

Monetary And Financial Sector Developments

The National Bank of Angola (BNA) remains committed to price stability. However, given the nature of Angola’s high import-dependent economy with limited non-oil exports products, high government spending and massive demand for foreign exchange transactions, BNA is focusing on a prudent monetary stance attuned to further reduce inflation, stabilize the exchange rate, and increase the level of NIR. Inflation is projected to decline further in 2012 to single digits while NIR, at about U$32 billion in June 2012, was equivalent to 8 months of imports, in line with similar oil export economies.

My Angolan authorities have also undertaken far-reaching reforms on the monetary front. In their view, the implementation of sound monetary policy with the aim of pursuing financial sector stability, continuing with the de-dollarization of the economy and developing appropriate Kwanza-denominated savings instruments is crucial to maintaining a sustainable monetary policy. BNA is also actively strengthening prudential regulation for short-term credit denominated in foreign currency and tightening net open positions of commercial banks.

My authorities recognize that financial sector deepening is crucial to sustain their monetary and financial stance. To this end, the BNA has integrated in its short-term monetary policy operational framework risk-based and cross-border supervision measures to improve its micro and macro prudential policies. It intends to continue efforts to strengthen banking supervision and comply with AML/CFT standards. The BNA will also prudently manage the implementation of the new foreign exchange law for the oil sector, by enhancing supervisory capacity prior to the full implementation of the law and pursuing efforts to reinforce the legal and institutional framework for financial sector regulation that will ensure transparency and efficiency of the monetary instruments.

Structural Reforms

My authorities’ vision, as expressed in the structural reforms agenda is a balanced, comprehensive, and sustained development that builds on the country’s considerable resources and potential, with a view to reducing poverty and creating employment opportunities. They are of the view that the growth momentum needs to be conducive to a more diversified economy with reduced dependence on the extractive industries.

As emphasized in the economic program, the principal engine for growth has to be the private sector. As such, my authorities consider further reducing the cost of doing business through streamlined legislation, strengthening the judicial system and simplifying tax compliance. The dissemination of one-stop-shops is an important step towards the achievement of these goals. Also, substantial progress in roads and railways and communication networks are facilitating transportation of goods and services and have considerably reduced delays and costs smoothing the creation and registration of new private companies.

First Post Program Monitoring

While noting the strong capacity to totally reimburse the Fund, my authorities are committed to persevere with the macroeconomic gains of the last few years and the need to protect and consolidate it through continued expenditure discipline, strengthening of the fiscal accounts, decreasing reliance on oil and diamond based revenues, and sound management of the public debt. In addition, for growth and enhanced competitiveness, my authorities are committed to take bold actions to promote a sound financial system, eliminate barriers against private capital flows, enforce competition-friendly regulations, to continue to undertake structural reforms in various sectors, and deal with specific cases of market failures.

Conclusion

My Angolan authorities have shown determination in their efforts to attain and sustain macroeconomic stability, and would like to reiterate their commitment to implementing prudent fiscal and monetary policies with the aim of achieving strengthened public financial management and inclusive growth. They value the continued support provided by Management and Executive Directors, and thank staff for the helpful collaboration and valuable technical advice.