Angola’s economy survived the recent slump in oil prices thanks to a healthy level of international reserves, but greater economic diversification is needed to protect against future shocks, the International Monetary Fund has concluded.
“The Angolan economy has been severely affected by the sharp decline in oil prices in the last year,” said the IMF’s Ricardo Velloso, following an Article IV mission to the country’s capital Luanda earlier this month.
“A comfortable level of international reserves has allowed the economy to weather better the consequences of the fall in oil prices than in 2008/09. However, with oil accounting for over 95% of exports and about 75% of fiscal revenue, recent developments underscore the importance of promoting the diversification of the economy by preserving macroeconomic stability and moving forward an ambitious structural reform agenda.”
Velloso also acknowledged Angola’s “timely” revisions to its 2015 budget in the wake of the oil price fall. This will reduce the county’s deficit to 3.5% of gross domestic product, down from 6.5% last year, although public debt has increased significantly to 57% of GDP.
Offering advice for the setting of next year’s budget, the IMF said it should be predicated on conservative oil price assumptions, with protection of social assistance and infrastructure spending prioritised while maintaining fiscal discipline.
“It will be critical to bring the public sector wage bill, as a share of GDP, more in line with the new revenue reality of the budget,” Velloso said.
“Over the medium term, fiscal policy should aim at restoring fiscal buffers by setting public debt on a declining path and achieving fiscal consolidation through structural fiscal reforms. Increasing the non-oil revenue base by rationalising tax incentives and strengthening the newly created tax administration agency is a priority. With a view to do more and better in the context of lower revenues, the quality of capital spending can be improved by strengthening the processes to evaluate, select, and monitor projects in the public investment programme.”
Angola’s National Development Plan aims to bring about a more diverse economy and the IMF praised recent reforms to labour and private investment laws as steps in the right direction. The country’s authorities were also thanked for a “constructive and candid dialogue”.