Since the beginning of 2023, Angola’s oil production has fallen short of the target set by the government and is declining compared to 2022, which is severely penalising economic growth. Combined with the fall in Brent prices, this underperformance is weakening the external accounts of the country, which is also dealing with particularly high external debt repayments. Dollar liquidity therefore fell in Q2 2023 and the Kwanza depreciated sharply. The government’s solvency also deteriorated. To counteract this, the authorities announced major budget cuts at the beginning of August. In the short term, the rise in Brent prices will stabilise foreign exchange reserves, which still stand at a satisfactory level
In recent months, the African continent has been hit hard by inflationary pressures. In Eastern and Southern Africa, inflation peaked at 19.4% year-on-year in November 2022. It has since begun a slow and difficult deceleration: in July 2023, regional inflation fell to 15.5%, after peaking again at 20.6% in June. Nevertheless, this average masks major national disparities.
Following five consecutive years of recession, Angola’s economic outlook is brightening: the country should return to growth, expected to be +3% in 2022, benefiting from a favourable economic situation marked by the upward trajectory of the oil price and a resumption of national production of hydrocarbons. The resulting increase in budget revenues and exports should support the kwanza. This dynamic is helping to ease the pressures on the country’s external financing needs and debt sustainability, which has improved thanks to the reprofiling agreement concluded with China in early 2021. Nevertheless, the Angolan economy remains prone to significant vulnerabilities
With the country in recession for the fifth consecutive year (latest estimates put the contraction in 2020 at 4%), the current crisis is acting as a catalyst for existing weaknesses and further damaging the country’s economic prospects. The combined effect of lower oil prices and production and the depreciation of the currency has increased pressure on the capacity for external financing and the sustainability of Angola’s debt. The country has seen a significant decline in its currency reserves, which could become insufficient as the financing deficit increases. Currently under negotiation, the expected support of bilateral creditors (most notably China) is becoming crucial.
The country has renewed relationship with the IMF and obtained its financial support in late 2018. Under the Fund supervision, a mild recovery is expected in the near term but outlook remains weak due to a still tight foreign currency liquidity, a troubled banking system and a poor external environment. Amid higher oil price volatility, Angola continues to rely on the oil sector as a source of economic growth, fiscal income and foreign exchange earnings. Despite supportive measures to attract international investors, important deficiencies keep FDI weak. Some fiscal reforms are also ongoing, but governement room for maneuver remains slim.
The first year in office of the new president Joao Lourenço’s reveals a rather positive shift in economic policies, given his determination to clean up politics and the scope of the economic reforms engaged so far. The abandon of the currency peg has eased some pressures on the fx market though they still remain important. The financing package recently signed with the IMF will help to implement structural reforms aimed at diversifying the economy by fostering the development of the private sector. Nevertheless, the overall near-term economic outlook remains embedded in international oil price developments due to the lack of economic diversification. Additionally, the still ailing banking system keeps on straining the private sector
