IMF: strong reform and robust nonoil growth in Angola

imf_sealAfter a strong growth in 2013 estimated at 6.8 percent, economic growth in 2014 is projected at 3.9 percent despite a decline in oil output. Robust growth in the nonoil economy, mainly driven by a very good performance in the agricultural sector, is expected to offset a temporary but considerable drop in oil production. Ongoing investments in agriculture are expected to pay off with an increase in agriculture production by about 11½ percent in 2014. Other sectors such as manufacturing, electricity and services, are also expected to contribute. Inflation projected to reach 7½ percent by end-2014 is well within the Banco Nacional de Angola (BNA)’s objective. The overall fiscal balance, which was in surplus in the last four years, is expected to deteriorate substantially in 2014, reaching a deficit of around 4 percent of GDP. Oil revenue fell by 14 percent during January-May 2014, mainly due to a 10 percent decline in oil production related to unscheduled maintenance and repair work in some oil fields. International reserves at the BNA remain adequate at an equivalent of 7¾ months of imports.

Notwithstanding strong economic growth over the past decade, poverty and income inequality remain a challenge. The 2009 household expenditure survey, released in 2011, shows that Angola’s income distribution is among the most unequal in sub-Saharan Africa, with the top 10 percent of income earners concentrating one-third of total income, and puts the relative poverty headcount ratio in Angola at 37 percent (60 percent in rural areas).

Progress in structural reforms has been strong. The long-awaited non-oil tax reform was approved by the National Assembly on July 4, 2014, which is a crucial step toward reducing the budget’s heavy reliance on oil revenue. Public financial management (PFM) reforms also made headways with the introduction of two critical measures to control the proliferation of domestic expenditure arrears: (i) the budget framework law now includes a clear definition of arrears consistent with international best practice; and (ii) a new control procedure requires the confirmation by the Finance Ministry of all contracts above US$1.5 million. The Economy Ministry has also continued with the implementation of a number of measures aimed at improving the business environment, including the Angola Invest program.

The medium-term economic growth prospects remain favorable. The oil sector is expected to recover and grow by 2¼ percent on average over the next five years, as the decline in production in some oil fields is more than compensated by the commissioning of seven new fields, including a first phase of a pre-salt oil field expected to start operating in 2017. Large investments in the nonoil sector are expected to generate much needed diversification and job creation, mainly in the agricultural sector, but also in electricity, manufacturing, and services. The projected strong growth in the nonoil sector of about 7¾ percent on average over the next five years is also expected to increase domestic competition, thus contributing to reducing inflation further. Growth prospects over the longer term, however, are uncertain but should be firmed up during 2015, as ongoing pre-salt prospection should help to determine the amount of commercially viable oil reserves (IMF).

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