Request for An Extended Arrangement Under the Extended Fund Facility-Press Release; and Statement by the Executive Director for Angola
On December 7, 2018, the Executive Board of the International Monetary Fund (IMF) approved a three-year EAEFF in an amount of SDR 2.673 billion (about US$3.7 billion or 361 percent of Angola’s quota) to support Angola’s economic reform program.
The EFF1 supported program will help Angola restore external and fiscal sustainability and lay the foundations for sustainable, private-sector-led economic diversification. Critical pillars of the program include fiscal consolidation to bring debt to safer levels; increased exchange rate flexibility to regain competitiveness; and supportive monetary policy to reduce inflation. Other pillars of the program include strengthening the banking system; enabling a better business environment; updating the AML/CFT legal framework; and improving governance.
The Executive Board’s Decision allows for an amount of SDR 715 million (about US$990.7 million) to be immediately made available to Angola. The remaining amount will be phased in over the duration of the program, subject to semi-annual reviews.
Following the Executive Board’s discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The Angolan authorities are implementing a Macroeconomic Stabilization Program which is focused on strengthening fiscal sustainability, reducing inflation, promoting a more flexible exchange rate regime and improving financial sector stability. They are also implementing a National Development Plan for 2018–22 to address structural bottlenecks and promote human development, public sector reform, diversification and inclusive growth. The authorities also intend to improve governance and fight corruption. These efforts are supported by an IMF program under the Extended Fund Facility.
“Fiscal consolidation is a core element of the program. The authorities’ plan is to increase non-oil revenue, including by introducing a value added tax, eliminating subsidies and clearing domestic arrears. Protecting the poor and most vulnerable is an important element of the program. In this regard, the sequencing of reforms and putting in place off-setting measures will be important. Strengthening public financial management will improve the allocation of scarce public resources and strengthen policy formulation and implementation. Upfront fiscal consolidation in 2018 and gradual consolidation in the medium term is necessary to place public debt on a downward trajectory and create space for much needed infrastructure and social spending. Sound policy implementation can mitigate risks from international oil prices. Strengthened debt management and transparency is critical to address debt-related risks.
“The exchange rate depreciation and the commitment to a market-determined exchange rate are critical steps towards eliminating foreign exchange shortages and restoring external competitiveness. The liberalized exchange rate regime will be supported by tight monetary policy to anchor inflation expectations and allow accumulation of international reserves.
“Safeguarding financial sector stability is critical for the success of the program. The authorities plan to improve governance and credit-risk management at public banks. An asset quality review for largest banks is expected to inform possible recapitalization and restructuring needs. A reexamination of policies that create foreign exchange mismatches in bank balance sheets would help promote financial sector stability. Pressures on correspondent banking relationships will be mitigated by submitting a new AML/CFT law to Parliament.
“Structural reforms under the program will aim to diversify the economy to reduce fiscal risks and foster private sector development. They will include restructuring state-owned enterprises and improving the business climate, strengthening economic governance, and continuing to fight corruption.”
Executive Board Assessment2
Executive Directors welcomed Angola’s commitment to a strong program in a difficult economic situation to address the imbalances built up in recent years. They noted that sustained implementation of program policies will be key to entrench macroeconomic stability, bolster confidence, encourage diversification, promote sustainable and inclusive growth, and support human development. Directors noted the risks to the program, including from lower-than-projected international oil prices and stronger-than-expected decline in oil production. They welcomed plans to mitigate these risks by sound policy implementation, supported by technical assistance.
Directors considered the ambitious fiscal adjustment as critical to the program to ensure sustainability and address debt vulnerabilities. They welcomed upfront consolidation in 2018 and supported the objectives and measures underpinning the 2019 draft budget. In particular, Directors underscored the need for rationalizing current expenditures, implementing the VAT and progressively eliminating subsidies, and stressed the importance of having off-setting measures to cushion the impact on the poor. They emphasized the need for these measures to be carefully sequenced and monitored. They noted that gradual fiscal consolidation in the medium term is necessary to place public debt on a downward trajectory and create space for much needed infrastructure and social spending. Directors stressed that strengthening debt management and transparency was critical for the program. Recognizing that this is a performance criterion, a number of Directors welcomed the authorities’ efforts not to take on additional collateralized debt.
Directors underlined that greater exchange rate flexibility was necessary to improve external competitiveness, rebuild foreign exchange reserves, and promote private sector activity. They emphasized the importance of eliminating exchange restrictions and arrangements that can give rise to multiple currency practices. Directors called for tighter monetary policy to contain inflation in the short term.
Directors stressed the importance of addressing vulnerabilities in the banking system, including through enhancing bank supervision and regulation. They underscored the importance of the central bank enforcing compliance with prudential regulations, and revisiting policies that create foreign exchange mismatches. Directors urged the authorities to bolster governance and credit-risk management at state-owned banks and to accelerate their restructuring. They encouraged the authorities to complete asset quality reviews for eight major banks, address the high level of nonperforming loans, put in place an adequate insolvency law, and submit a new AML/CFT law to the National Assembly.
Directors emphasized the need to improve the business environment, diversify the economy and implement structural reform to help reduce fiscal risks and foster private sector development. They underscored the need to continue efforts to strengthen economic governance, including the completion of the anti-corruption strategy, and called for a comprehensive reform of state-owned enterprises, in particular the state oil company, to help curb fiscal risks, and improve efficiency. Directors noted the importance of improving the quality of data and timeliness of statistics.
The Extended Fund Facility (EFF) was established to provide assistance to countries: (i) experiencing serious payments imbalances because of structural impediments; or (ii) characterized by slow growth and an inherently weak balance of payments position. It provides assistance in support of comprehensive programs that include policies of the scope and character required to correct structural imbalances over an extended period.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.