Angola: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Angola

1. While a gradual recovery appears to be starting, the impact of last year’s strong COVID-related shocks is still being felt on the economic, health, and social fronts. Following four years of recession, the COVID-19 shock resulted in a large output contraction in 2020, severely pressured external balances, and further reduced Angolans’ average incomes, in a context of already high poverty levels. Pressures have begun to ease somewhat amid higher global oil prices and contained levels of COVID infections, but the nascent recovery will likely remain partial this year.

Abstract

1. While a gradual recovery appears to be starting, the impact of last year’s strong COVID-related shocks is still being felt on the economic, health, and social fronts. Following four years of recession, the COVID-19 shock resulted in a large output contraction in 2020, severely pressured external balances, and further reduced Angolans’ average incomes, in a context of already high poverty levels. Pressures have begun to ease somewhat amid higher global oil prices and contained levels of COVID infections, but the nascent recovery will likely remain partial this year.

Transitioning to Gradual Recovery

1. While a gradual recovery appears to be starting, the impact of last year’s strong COVID-related shocks is still being felt on the economic, health, and social fronts. Following four years of recession, the COVID-19 shock resulted in a large output contraction in 2020, severely pressured external balances, and further reduced Angolans’ average incomes, in a context of already high poverty levels. Pressures have begun to ease somewhat amid higher global oil prices and contained levels of COVID infections, but the nascent recovery will likely remain partial this year.

  • Evolving impact of COVID shocks. The number of new COVID cases and associated deaths remains limited (compared to neighbors) but rose in April (averaging 140 new cases and 2 deaths per day), and containment measures were tightened. The government is ramping up its vaccination campaign via Chinese government donations (200,000 doses), the COVAX system (12.8 million doses), and purchases of Sputnik V (6 million doses). Almost 500,000 people have been vaccinated as of end-April.

  • The oil price recovery has boosted revenues, but production continues to fall. Oil prices partially recovered starting in late 2020, but oil production still suffered an 8 percent drop last year due to pandemic-related shutdowns and reduced investment. Weak production has continued into early 2021.

  • The non-oil economy is recovering only gradually. Non-oil GDP started to recover in Q3 2020, as some initial lockdown measures were relaxed. Despite this relative improvement and the agriculture sector’s resilience, the non-oil sector contracted by 4 percent in real terms in 2020. Adverse weather conditions (drought, heavy rainfall) in agriculture-producing regions in early 2021 are posing additional headwinds to the recovery.

  • Inflation remains elevated. Inflation ended 2020 at 25.1 percent (y/y), and it has eased only marginally through April. Food inflation (still above 30 percent y/y through April) continues to drive the headline, exacerbated by adverse weather events.

  • Fiscal policy delivered substantial consolidation in 2020 and 2021. The 2020 non-oil primary fiscal deficit (NOPFD) fell to 5.5 percent of GDP, down from 6.1 percent of GDP in 2019, meeting the program PC with a substantial margin. Non-oil revenue rose sharply, thanks to value-added tax (VAT) and income tax collections, which created room for higher-than-budgeted spending on key public investment projects. Oil revenues also overperformed projections, although lower production offset higher prices. The overall balance was -1.9 percent of GDP; combined with sharp exchange rate depreciation, this deficit pushed the public debt ratio to over 135 percent of GDP. Strong non-oil revenue performance continued into the first quarter of 2021, which produced an overall surplus while allowing for higher than planned investment spending.

  • External balances have improved, and the exchange rate has stabilized. Exports fell by 40 percent (by value) in 2020 due to the sharp decline in oil prices and lower oil production. Nevertheless, the 2020 current account balance ended in a modest surplus due to a strong import contraction on the back of the kwanza’s real depreciation. The external position is expected to strengthen further in 2021, supported by higher oil prices. The nominal exchange rate has broadly stabilized since November 2020 as oil prices recovered.

  • Banks are still risk-averse amid a difficult macroeconomic environment. Bank credit to the real economy contracted in 2020, and the banking system registered net losses; while this affected banks’ level of capital, it nonetheless remains high on average. In the last quarter of 2020, bank credit showed some signs of recovery.

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Angola: Covid-19 Daily Cases and Deaths

(7 day moving average)

Citation: IMF Staff Country Reports 2021, 140; 10.5089/9781513578767.002.A001

Sources: World Health Organisation; and Angolan authorities.
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Covid-19 Cases and Deaths per Million Population Selected African Countries

Citation: IMF Staff Country Reports 2021, 140; 10.5089/9781513578767.002.A001

Sources: Worldometer and IMF Staff calculations.

2. Angola’s non-oil economy is expected to continue a gradual recovery in the first half of 2021. Staff expect growth in non-oil GDP to rebound slowly from the pandemic, reaching 2.3 percent in 2021, as the effects of the pandemic linger and recent adverse weather shocks disrupt some activity. Oil and gas production are projected to continue to drop this year due to subdued investment and recurring technical issues, causing overall real GDP to roughly stagnate in 2021.

3. The risks to the outlook persist but have eased in the near term. The recovery in global oil prices could reverse; there could be a resurgence of the pandemic (globally or domestically); or the pandemic’s impact on the non-oil economy could be longer-lasting than anticipated. The impact of weather-related shocks could also be greater than expected. Materialization of any of these risks could lead to a deeper-than-expected contraction in output in 2021. Angola’s debt dynamics would in turn be challenged. Failure to continue to fully implement the government’s reform program— including the ongoing fiscal adjustment—would also weaken debt dynamics and recovery prospects. Upside risks include a better-than-expected path for oil production, sustained higher oil prices, and a faster recovery of the non-oil economy.

Program on Track in the Face of Challenges

4. The authorities continue to perform satisfactorily under the program amid a myriad of challenges (Tables 16; Figures 14; MEFP Tables 12). The authorities met the end-December 2020 PCs on the non-oil primary deficit, net international reserves (NIR), and reserve money. For end-December 2020, the PC on central bank claims on the central government was missed, for which a waiver was granted, with the result staying within the waiver amount. All continuous PCs were met.1 All end-December 2020 ITs were also met, except for the stock of central government debt and debt of Sonangol. All end-March ITs were likely met, except for net accumulation of the stock of payments arrears by the central government. Of the nine structural benchmarks (SBs) up to end-March 2021, two have been met, the actions of three were completed with a delay, and progress is continuing toward the remaining four.

Table 1.

Angola: Main Economic Indicators, 2020–2025

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

Includes debt of the Central Government, external debt of state oil company Sonangol and state airline company TAAG, and guaranteed debt.

Table 2a.

Angola: Statement of Central Government Operations, 2019–23

(Billions of kwanzas, unless otherwise indicated)

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

Historical figures may include valuation effects related to foreign-currency denominated deposits. Projections for 2020–23 include deposit withdrawals from FSDEA.

Includes repayment of debt owed to Sonangol related to the National Urbanization and Housing Plan (PNUH).

Spending on education, health, social protection, and housing and community services. For 2020 onwards are projected floors.

Includes debt of the Central Government, external debt of state oil company Sonangol and state airline company TAAG, and guaranteed debt.

Table 2b.

Angola: Statement of Central Government Operations, 2019–23

(Percent of GDP, unless otherwise indicated)

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

Historical figures may include valuation effects related to foreign-currency denominated deposits. Projections for 2020–23 include deposit withdrawals from FSDEA.

Includes repayment of debt owed to Sonangol related to the National Urbanization and Housing Plan (PNUH).

Spending on education, health, social protection, and housing and community services. For 2020 onwards are projected floors.

Includes debt of the Central Government, external debt of state oil company Sonangol and state airline company TAAG, and guaranteed debt.

Table 2c.

Angola: Statement of Central Government Operations, 2019–23

(Percent of non-oil GDP, unless otherwise indicated)

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

Historical figures may include valuation effects related to foreign-currency denominated deposits. Projections for 2020–23 include deposit withdrawals from FSDEA.

Includes repayment of debt owed to Sonangol related to the National Urbanization and Housing Plan (PNUH).

Spending on education, health, social protection, and housing and community services. For 2020 onwards are projected floors.

Includes debt of the Central Government, external debt of state oil company Sonangol and state airline company TAAG, and guaranteed debt.

Table 2d.

Angola: Statement of Central Government Operations, 2019–23

Debt reprofiling recorded as exceptional financing (Billions of kwanzas, unless otherwise indicated)

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

Historical figures may include valuation effects related to foreign-currency denominated deposits. Projections for 2020–23 include deposit withdrawals from FSDEA.

Includes repayment of debt owed to Sonangol related to the National Urbanization and Housing Plan (PNUH).

Spending on education, health, social protection, and housing and community services. For 2020 onwards are projected floors.

Includes debt of the Central Government, external debt of state oil company Sonangol and state airline company TAAG, and guaranteed debt.

Includes debt guaranteed and excludes debt owed by the Central Government to Sonangol related to the National Urbanization and Housing Plan (PNUH).

Excludes debt guaranteed and includes debt owed by the Central Government to Sonangol related to the National Urbanization and Housing Plan (PNUH).

Table 3.

Angola: Monetary Accounts, 2019–23

(End of period; Billions of currency, unless otherwise indicated)

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

Including exchange rate valuation.