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20 November 2023

The Angolan Economy: Another balanced budget expected in 2024

Economic growth expected to accelerate in 2024, but remain subpar

The 2024 budget proposal assumes that real GDP growth will accelerate to 2.8% (from a downwardly revised growth estimate of 0.3% this year), as activity in the oil sector remains negative (-2.5%) and the non-oil sector sees an improved performance (4.6%). Annual inflation is expected to trend downwards to 15.3% (from 17.8% in 2023) after being under some pressure this year due to the impact of the depreciation of the kwanza on the prices of some goods and services. The budget proposal assumes that oil prices will average US$ 65 per barrel in 2024. This is lower than the US$ 75 projected in the 2023 budget (and the price expected for this year). The government also sees average daily crude production of 1.060 million barrels in 2024, falling 28k barrels/day (or -2.6%) from 2023. This is due to stoppages for maintenance works still required in several oil fields throughout next year. 


Budget balance anticipated to reach a marginal surplus

The budget proposal amounts to AKZ 24,715 billion, standing 22.9% above the 2023 budget and 12.7% ahead of the expected figure for the year. The budget assumes that the government will reach a marginal surplus of AKZ 17 billion (equivalent to 0.02% of GDP) following a deficit of -0.1% expected in 2023. The government also forecasts a primary surplus (excluding debt payments) equivalent to 6.2% of GDP, above the surplus of 5.1% expected in 2023.


Oil receipts to represent more than half of total revenues

The government forecasts that total revenues and expenditures will amount to 20.1% of GDP in 2024. Revenues are expected to benefit from a strong performance in non-oil-related receipts (20.4%), while proceeds from the oil sector are anticipated to rise by a more modest 4.2% because of the lower crude prices and production expected for the year. The higher expenditure come from the marked increase in spending on goods and services (+48.8%) as well as interest payments (+39.3%). On the other hand, the government expects to reduce its spending on transfers, namely subsidies (-52.9%), as it continues to cut fuel subsidies in 2024. All in all, oil receipts are still anticipated to represent more than half of total revenues (53.4%), while interest payments account for nearly a third of total expenditures (31.0%).


More than half of public spending to be allocated to debt service payments

The government projects that 52.8% of the proceeds needed to finance its 2024 budget will come from taxes (31.8% from the oil sector), while 40.5% will come from debt financing. The amount of debt financing is expected to rise by 18.2%, with financing in overseas markets increasing by nearly fourfold. In terms of expenditures, we note that 57.8% of public spending is to be allocated to debt service amortization (capital plus interest), a significant increase from the previous year (49.1% of total spending).


Low public investment levels could jeopardize growth prospects

The Angolan government expects to deliver another balanced budget in 2024 as well as reduce the non-oil primary deficit to 4.1% of GDP, keeping this ratio within the 5% limit established in the Law of the Sustainability of Public Finances. Public debt levels are also expected to come down to 69.2% of GDP (from 79.9% in 2023), although still remain well above the long-term target of 60%. These are no doubt positive news. However, one should bear in mind that well over half of public expenditures in the 2024 budget are expected to continue to be allocated to debt service payments, while public investment levels (3.5% of GDP) remain at multi-year lows. This makes it even more challenging for the medium-term growth prospects of the country.