Emerging

Under the IMF supervision

th  
23  
EcoEmerging // 4 quarter 2019  
economic-research.bnpparibas.com  
Angola  
Under the IMF supervision  
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.  
Angola is successfully undergoing business-friendly reforms aiming  
1
- Forecasts  
to improve governance and transparency, diversify the economy  
and reduce its reliance on bilateral loans. Beyond political transition,  
hydrocarbon sector reshaping and new fx exchange policy, the  
government has restored relations with the IMF resulting in a three-  
year extended agreement for about USD 3.7 billion in December  
2017  
2018 2019e 2020e  
Real GDP growth (%)  
-0.2  
-1.7  
0.3  
2.8  
Inflation (CPI, year average, %)  
Gen. Gov. balance / GDP (%)  
Gen. Gov. debt / GDP (%)  
29.8  
-6.3  
19.6  
2.1  
17.4  
-0.1  
11.1  
0.3  
2
018, with disbursements until 2021. Nevertheless, the promising  
69.3  
-0.5  
87.8  
6.6  
90.6  
-2.0  
83.6  
0.4  
IMF’s program starts in the context of a weakened near-term  
outlook due to higher oil price volatility, more restrictive external  
financial conditions and trade tensions between the US and China,  
which is Angola’s major trading partner.  
Current account balance / GDP (%)  
External debt / GDP (%)  
38.2  
18.6  
8.7  
56.0  
16.1  
7.3  
58.5  
15.2  
6.6  
54.9  
16.5  
7.2  
Forex reserves (USD bn)  
Forex reserves, in months of imports  
Exchange rate USDAOA (year end)  
A mild growth recovery is possible  
166  
310  
368  
380  
e: BNP Paribas Group Economic Research estimates and forecasts  
After recession for the third consecutive year in 2018, Angola GDP  
seems to struggle to recover and remained in negative territory in  
the first quarter of 2019. According to the National Statistical  
Institute (INE) data, the economy contracted by 0.4% on an annual  
basis in Q1, contrasting with the previous quarter’s expansion of  
2
- A difficult start to the year  
ICE (Economic Climate Indicator)  Q GDP year-on-year %  
 Oil Revenues in USD Millions (rhs)  
2
.6%. Q1 2019 contraction mainly comes from oil sector (-6.9%)  
30  
250  
200  
150  
1
which continues to play a very dominant role in Angola's economy ,  
alongside with a contraction in the telecommunications (-6.8%) and  
financial services (-4.8%). The negative oil growth is largely the  
2
0
0
0
1
2
result of a falling oil production along withan uptick in crude prices,  
due to a combination of maturing fields that are producing less oil,  
maintenance stoppages and a lack of new exploration opportunities  
into Angola's deepwaters’ explorations.  
-
10  
1
5
0
00  
-20  
0
-
30  
40  
Overall economic sentiment improved in Q1 despite remaining firmly  
entrenched in negative territory. Indeed, the economic climate  
indicator (ICE: Indicador de Clima Económico) published by the  
Statistical Institute, that increased from -12 points in Q4 2018 to  
-
2011 2012 2013 2014 2015 2016 2017 2018 2019  
Source: INE, Reuters, EIA, BNP Paribas  
-
0
9 points in Q1 2019. In 2019, GDP growth is likely to post a mere  
.3% with still contracting oil growth (despite the ramping up of Total  
3
environment and sustain the private-sector-led growth , but the still-  
ailing banking system and constraints on FX access for banking  
activity keep on straining the overall economic dynamics.  
South Kaombo field). The tepid recovery should also be driven by  
modest non-oil growth benefiting from the implementation of the IMF  
programme. In June 2019, the government has successfully  
completed the first review of the Extended Fund Facility with the  
release of the second tranche of financing (USD 248 mn), thus  
bringing to around USD 1.24 billion the total disbursement obtained  
so far. The government continues its efforts to improve the business  
3
1
Such as, for example, raw diamonds commerce liberalization, or establish a  
It contributes to about 30% of GDP, 95% of exports, and over 60% of fiscal  
Regulatory Authority for Competition and privatization resolution, with a list of 32  
state-owned enterprises earmarked to be sold on the country's stock exchange,  
the Bolsa de Dívida e Valores de Angola (BODIVA) by 2022.  
revenues at end 2018.  
2
According to the OPEC data, Angola’s crude oil production was reported at  
,394.000 Barrel/Day in August 2019, which represents a record low over the  
1
last decade.  
th  
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EcoEmerging // 4 quarter 2019  
economic-research.bnpparibas.com  
Still hard access to foreign currencies  
3- Fiscal adjustements but increasing interest costs  
Despite the abandon of currency peg in January 2018, access to  
foreign currency remains difficult. The Central Bank continues to  
keep a local currency trading band and prioritise currency access for  
specifically selected activities (food, health, and petroleum), which  
have triggered a restriction on 54 imported-substitution goods. Most  
of dollar denominated contracts are paid in euros because of the  
% of GDP  
 Budget balance  Total Revenues  
 Total Revenues  Interest Expenditure  Public Debt (rhs)  
40  
9
5
30  
75  
4
loss in the US dollar correspondent banking . Authorities are trying  
55  
2
0
0
0
to resume sales of dollars within local commercial banks but the  
correspondent banking in dollars would be restored once efficient  
reforms to combat money laundering and reduce the institutional  
corruption will be implemented.  
35  
1
15  
-5  
Meanwhile, the country continues to rely on the oil sector as a  
source of fx earnings. But a persistent declining oil production, albeit  
oil prices partial revival, affects export growth while maintaining an  
acute shortage of fx reserves. Indeed, the country does not have oil  
-10  
-25  
2
013  
2014  
2015  
2016  
2017  
2018  
2019f  
Source: IMF, BNPParibas  
5
refineries and must use hard currency to import refined oil ;  
moreover, fx earnings from energy are used to service debt  
payments (both external and domestic), which accounted for more  
than 16% of GDP at end 2018.  
presented end of May 2019, which recalibrates expenditure  
envelope to lower oil prices and identifies new non-oil revenue  
measures to offset the expected revenue loss (around 3.8% of  
GDP according to the IMF). Nevertheless, revenues projections  
would suffer from postponed value added tax (VAT) introduction,  
with expected fiscal balance likely to go back to deficit this year.  
6
Exports have declined by 10% yoy in Q1 2019 while imports have  
risen by more than 40% in the same framework. Fx reserves  
erosion continues further (they have declined by 5% since January  
2
2
019). The current account balance is expected to swing back to a  
% deficit in 2019, after the strong surplus in 2018. Therefore,  
But the room for maneuver is very slim. Indeed, the debt-to-GDP  
ratio has more than doubled in the last four years to reach 88% in  
2018 and the debt burden (interest-to-revenue ratio) has soared up  
to 21% in 2018. The Government is committed to pursuing a  
prudent debt management strategy by decreasing public debt  
issuing and by developing the primary domestic debt market in local  
currency with increasingly longer maturities (instead of fx currency  
which increases its exposure to exchange risk). It will also enforce  
prudent SOE borrowing by moderating issuance of sovereign  
guarantees. A large privatization program 7 has also been  
considered. Albeit public debt-to-GDP ratio may be able to be  
reduced, it remains highly vulnerable to further local currency  
depreciation and further declining oil price.  
although FDI inflow has resumed in the first quarter of the year,  
external financing requirements are expected to increase further this  
year. The IMF support (USD 0.5 bn in 2019 and USD 1.1 bn per  
year in 2020-2021) would allow official fx reserves to recover in  
2
020 only.  
At the same time, after having lost more than 40% in 2018, the  
kwanza registered a further 15% fall since the beginning of the year  
and it is now traded at AOA 365 per USD at the official rate. If the  
partial fx regime liberalisation has helped to reduce the kwanza  
overvaluation, the local currency continues to trade considerably  
higher in the parallel market (at above AOA 500 per USD in  
September). Even if the likelihood of a large exchange rate shock  
has been lessened by the transition to a more flexible exchange rate  
regime, further devaluations remain very likely in the medium term.  
Fiscal reforms but worsening debt metrics  
Ongoing fiscal reforms are mainly related to the ending of fuel  
subsidies, improving SOEs accountability and arrears clearance.  
Last year, budget execution was beyond expectations, with a fiscal  
balance moving back into a strong surplus thanks to contained  
government spending (below 20% of GDP), oil prices rebound and  
the kwanza depreciation. Fiscal consolidation is expected to  
continue in 2019, as evidenced by the supplementary budget  
6
Such as adjusting excise rates on energy, soda drinks and real estate,  
removing some personal income tax exemptions, widening the stamp tax base  
to include self-employed professionals and transactions that are not subject to  
VAT.  
4
The USD Correspondent Baking was closed in 2016 by the FED owing to  
7
concerns about weak anti-money laundering/combating the financing of  
terrorism.  
Amongst the 190 major privatizations there are Sonangol, Endiama, TAAG,  
Bancos de Comércio e Indústria (BCI), Banco Angolano de Investimentos (BAI),  
Bolsa da Dívida e Valores de Angola (Bodiva), and some major telecom  
companies.  
5
A severe fuel shortage occurred in March 2019 due to difficulties in accessing  
USD.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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