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24 May 2019

The Angolan Economy - Revised Budget (2019)

The Angolan Economy

Revised Budget (2019)

First budget surplus since 2013

Significantly higher than projected average oil prices in 2018 (US$ 71.9 vs. US$ 50 forecasted), coupled with lower than expected current expenditures (-6.6%), allowed the Angolan government to reach a fiscal surplus for the first time since 2013. This pricing effect more than compensated the lower oil production in the year, as Angola continues to face bottlenecks and aging oil fields that have hindered output in recent years. It was also more than sufficient to offset the impact of lower taxes in the non-oil sector that reflects a persistently weak economic environment in the country. All in all, the 2018 budget surplus stood at 3.0% of GDP, which compares with deficit of 3.2% of GDP initially foreseen and -6.3% of GDP in the previous year. Moreover, the primary balance (excludes interest payments) reached a surplus of 7.4% of GDP (vs. -2.9% of GDP in 2017).  

Soft economic expansion expected this year

The government’s updated macro forecasts included in the revised budget for 2019 continue to assume that Angola will return to economic growth following a period of recession in the past three years (2016-18). The new real GDP growth assumption of 0.3% compares with a previous estimate of 2.8% and reflects another contraction in activity in the oil and gas sector (-3.5%) and a softer expansion in the non-oil sector than expected before (1.6% vs. 2.6% previously). It is also worth noting that the government lowered its forecasts for average oil prices for this year from US$ 68 to US$ 55, stating that this new price would be more aligned with the latest IMF and consensus projections, and oil production by 8.6% to 1.435 million barrels per day.           

Revised budget assumes lower revenues/expenditures

The revised budget for 2019, which received parliamentary approval on May 22, is less expansionary than the initial budget proposal after the government lowered total expected receipts and expenditures by 8.4% to AKZ 10,401 billion. This is roughly US$ 32 billion at the current exchange rate and represents 33.6% of GDP (vs. 32.6% of GDP previously). The government is still expected to finance its expenditures by relying more on fiscal revenues (57.6% of total proceeds). However, lower receipts projected for this year (-19.4%) will require an increased reliance in financing from overseas markets (+29.5%) than previously thought, putting further strain on already elevated government debt levels (80% of GDP in 2018).  

Government projects a balanced budget for 2019

The revised budget assumes that tax receipts from the oil sector will stand at nearly two-thirds of the level previously forecasted, reflecting the lower assumptions for oil price and output. This impact is expected to outweigh a relatively larger contribution from non-oil sector related taxes (16.5%), as VAT receipts start to kick-in during the second half of 2019. This means that the government will have to aggressively lower expenditures. In particular, the new budget foresees a marked reduction in spending on goods and services (-39.5%), subsidies (-37.3%) as well as investment (-21%). Overall, the government expects to reach a balanced budget this year with a primary surplus of 5.2% of GDP. These projections compare with previous assumptions of a surplus of 1.5% and 6.1%, respectively.