IMF Executive Board Concludes 2018 Article IV Consultation with Angola

Stocks and Financial Services Press Releases Tuesday May 22, 2018 09:29
IMF--22 May--International Monetary Fund
On May 18, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Angola.

Lower oil prices since mid-2014 placed the Angolan economy under stress. The authorities initially reacted to the oil price shock with significant fiscal tightening and exchange rate adjustments coupled with foreign exchange quantitative restrictions. The policy mix in the run-up to the August 2017 elections—fiscal expansion and pegged exchange rate—led to a further erosion of fiscal and external buffers. The Government of President João Lourenco has focused attention on improving governance and restoring macroeconomic stability. The Government's macroeconomic stabilization program envisages: upfront fiscal consolidation; greater exchange rate flexibility; reducing the public debt-to-GDP ratio to 60 percent over the medium term; improving the public debt profile; settling domestic payments arrears; and enhancing Angola's AML/CFT framework.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the government's reform program aimed at addressing its post?conflict development challenges, restoring macroeconomic stability, and improving the business environment. Directors welcomed the recent improvements in economic conditions and noted that more favorable oil prices present a unique opportunity to address macroeconomic imbalances, including the erosion of fiscal and external buffers, and reduce dependency on oil. In this context, Directors underscored the need for steadfast implementation of the government's macroeconomic stabilization program and for structural reforms to diversify the economy and support inclusive growth.

Directors supported the fiscal deficit reduction outlined in the 2018 budget and stressed that any revenue windfalls should be used to clear domestic arrears and reduce public debt. With oil prices predicted to decline over the medium term, Directors underscored the need for additional but gradual fiscal consolidation to put public debt on a clear downward path. Directors emphasized that the consolidation should be underpinned by mobilizing additional non?oil fiscal revenue, including by improving tax compliance and the planned introduction of a VAT, as well as further rationalizing public expenditure and improving the quality of public investment while expanding well?targeted social programs.

Directors agreed that monetary and exchange rate policies should play a vital role in rebalancing the foreign exchange market and containing inflation. They welcomed the transition to greater exchange rate flexibility and the new monetary policy framework anchored on base money targeting consistent with the inflation objective. Directors stressed the need to gradually phase out direct foreign exchange sales by the central bank, and to set a clear strategy and timetable for eliminating exchange restrictions and multiple currency practices.

Directors stressed the importance of preserving the health of the banking sector, including the need for concrete actions to complete asset quality reviews, and to strengthen crisis management, emergency liquidity assistance, and the AML/CFT frameworks. They supported ongoing efforts to reinforce capital and liquidity buffers while strengthening governance at the state?owned banks.

Directors noted that the new government's structural reform agenda is appropriately focused on improving governance, fighting corruption, and improving the weak business environment. They urged concerted efforts to ensure that the reforms are implemented consistently for Angola to reap the expected gains. Directors stressed the need to continue building strong institutions to help ensure that the ongoing reforms have a lasting positive impact on the lives of the Angolan people.

It is expected that the next Article IV consultation with Angola will be held on the standard 12?month cycle.

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