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11 February 2021

The Angolan Economy: Turning the Page on Recession in 2021?


Lower oil production and prices and Covid-19 hit economic activity

Economic activity in Angola remained weak in 2020, with real GDP likely to have contracted by at least 4.0% YoY. This evolution reflected persistently declining oil production and low crude prices, but also the impacts of Covid-19 on non-oil related sectors. This means that activity in both the oil and non-oil sectors contracted for the first time since 2016. Meanwhile, inflation interrupted the downward trajectory that began in 2018 as a result of the effects of significant supply disruptions caused by the pandemic, the continued sharp depreciation of the kwanza and the modification of the VAT in September 2020. Annual inflation reached 25.1% in end-2020, well above the 16.9% recorded in the previous year. The BNA continued to allow a more flexible exchange rate to act as a shock absorber and began to gradually shift toward a tighter monetary policy stance in the second half of the year to contain inflationary pressures. In terms of fiscal policy, the government achieved a better than expected budgetary adjustment that included higher tax receipts and slightly lower expenses. This allowed for a lower fiscal deficit forecast of -1.5% of GDP.


IMF completes fourth review and disburses US$ 487.5 million

The IMF completed the fourth review of Angola’s economic program supported by an extended arrangement under the Extended Fund Facility in January. This allowed for the disbursement of US$ 487.5 million, bringing total disbursements to US$ 3 billion. Recall that Angola’s three-year extended arrangement was approved in December 2018 and amounted to US$ 3.7 billion. This amount was increased by US$ 765 million (lifting the total aid to about US$ 4.5 billion) at the time of the third review at the request of the government in order to support the efforts to attenuate the impact of the pandemic and sustain the implementation of structural reforms.


Program performance has been adequate since last review

The IMF concluded that the performance of the program has been adequate, with all but two indicative targets established for end-September 2020 being achieved. The exceptions were the central bank claims on the central government and the stock of public debt. The IMF also stated that, although only two of the eight structural benchmarks up to end-December 2020 were expected to be met, progress is being made on achieving the remaining six. In terms of fiscal policy, the Fund said that the 2021 budget consolidates the non-oil revenue gains and more muted expenditures of the 2020 budget, while protecting priority health and social spending. This should help reduce the dependence on oil revenues. Moreover, the implementation of debt reprofiling agreements and the extension of the debt service suspension initiative until end-June 2021 will provide important debt-service relief and help reduce the risks related to debt sustainability.Finally, the IMF said that continuing progress in financial sector reforms remains critical, especially completing the restructuring of BPC and BE, as well as the adoption of both the revised BNA Law and the revised Financial Institutions Law (both submitted to the National Assembly in 2020).


Relevant steps are being taken to help Angola come out of the recession

Angola continues to face significant risks related to its persistently high dependence on the oil sector, elevated debt levels and uncertain global economic backdrop. The authorities are taking relevant steps to help mitigate these risks including announcing a prudent 2021 budget, implementing an effective debt management strategy and pursuing a structural reform agenda that will hopefully support growth in the non-oil sector. It remains to be seen if these steps will suffice and allow the country to come out of its five-year recession in 2021.