Double Shock Nearly Halts Angola Economic Recovery –IMF

ANGOLA: Angola’s economic recovery in 2021/22 was nearly halted in 2023 by a double shock in the first half of the year, as the oil sector weakened, and the debt moratorium ended, the Executive Board of the International Monetary Fund (IMF) said following the conclusion the Article IV consultation with the country.

IMF said Angola’s economic growth is estimated at 0.5 percent for 2023, with an estimated contraction in the oil sector of 6.1 percent and softened non-oil growth at 2.9 percent.

The country’s headline inflation increased significantly in 2023, to 20.0 percent year on year at the end of December, driven by the depreciation of the kwanza and cuts in fuel subsidy in mid-2023.

In response to the shock, the IMF stated that the authorities tightened their fiscal stance in the second half of 2023, by cutting capital spending and related goods and services and implementing the first phase of their fuel subsidy reform in June 2023.

“These policy measures resulted in overall and non-oil primary fiscal balances of -0.1 percent of GDP and -6.3 percent of GDP, respectively”, IMF said in a statement released.

Meanwhile, public debt-to-GDP is projected to have increased by 19 p.p. to about 84 percent of GDP in 2023, mainly driven by a significantly weaker exchange rate.

The depreciation of the kwanza in June 2023 helped the economy adjust to lower oil exports and preserve international reserves, which remained at about 7 months of import coverage. The exchange rate has remained broadly stable since then.

Economic growth is projected to recover in the near-term, supported by improved oil production and the recovery in the non-oil sector. Inflation is expected to remain temporarily elevated in 2024 and to gradually decline thereafter, as the effects of the subsidy removal and the pass-through from nominal exchange rate depreciation diminish.

Meanwhile, the primary fiscal balance is expected to improve and remain positive given the expected continuation of fuel subsidy reform; lower debt service starting in 2024; and the expected recovery in growth.

IMF said downside risks to the near-term outlook include a larger-than-expected decline in global oil prices and/or domestic oil production as well as a delayed implementation of the fuel subsidy reform. Upside risks would mainly stem from higher-than-expected oil prices.

The multilateral lender recognized that Angola’s economic recovery was nearly halted in 2023, as the oil sector weakened, and the debt moratorium ended. At the same time, risks to the outlook remain high, including heavy dependence on the oil sector, debt and banking sector vulnerabilities, and uncertain market access.

Against this background, IMF directors emphasized the need for continued fiscal consolidation and structural reforms, supported by technical assistance from the Fund and other development partners, to maintain macroeconomic stability and foster diversified, resilient, and inclusive growth.

Directors agreed that continued fiscal consolidation and reforms are critical to strengthen fiscal and public debt sustainability. They welcomed the continued reduction of fuel subsidies in the 2024 budget and stressed the importance of sound implementation accompanied by timely and effective communication and well-targeted mitigation measures.

IMF also urged the authorities to accelerate the implementation of fiscal structural reforms to enhance budget credibility and contingency planning, as well as to strengthen revenue mobilization, expenditure prioritization, and debt management.

Directors agreed on the need to maintain a tight monetary policy stance to contain exchange rate and inflationary pressures. While welcoming that most of the recommendations from the safeguards assessment have been implemented, they stressed the need to further strengthen the monetary policy implementation framework to enhance monetary policy transmission, including by improving liquidity management, central bank communications, and coordination with the Ministry of Finance.

IMF also supported the continued efforts to transition towards an inflation-targeting framework, improve FX market functioning, develop rule-based FXI policy under the IMF’s Integrated Policy Framework, and ensure exchange rate flexibility as a key buffer against shocks.

Directors urged the authorities to continue their efforts to strengthen financial stability, building on strong previous progress. They noted the importance of effectively implementing the new supervisory regulations and operationalizing the bank resolution framework. Efforts to increase financial intermediation and credit to the private sector should also continue.

They highlighted the need for successful implementation of the National Development Plan to achieve more diversified and resilient growth.

IMF said priorities should focus on enhancing human capital through reductions in gender gaps, backed by effective social and public investment spending; improving the business environment and access to finance; strengthening climate adaptation and resilience; and sustaining efforts to address issues related to AML/CFT, governance, and corruption. Directors noted that efforts on all these fronts are macro-critical for Angola. #Double Shock Nearly Halts Angola Economic Recovery –IMF  Anti-Homosexuality: Uganda Faces Difficulties Accessing External Funding –Fitch

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