A vast country with a long coastline and central plateau, Angola thrusts inland across Southern Africa to border Namibia, Botswana, Zambia, and the Democratic Republic of the Congo. Its principal cities, including its capital, Luanda, look west over the South Atlantic to Brazil, another Portuguese-speaking nation (like itself). It has a population of more than 28.8 million (2016).

Economic Overview

The new administration of President João Lourenço, which took power after the 2017 general elections, has embraced reforms on several fronts to achieve macroeconomic stability and create a favorable environment for economic growth. After devaluing the currency, the government took further steps toward a more transparent and market-based foreign exchange market. Monetary policy remained tight and a substantial budget surplus was achieved in 2018. The new macroeconomic framework is being supported by a three-year International Monetary Fund Extended Financial Facility (EFF) in the amount of $3.8 billion, with an immediate disbursement of $990.7 million.

The government has also made progress in the implementation of more structural reforms. Two new laws that are essential to enhance private sector-led growth and competitiveness have been approved: the private investment law and the antitrust law, followed by the creation of a competition authority. The government took first steps to reform public utilities, utility tariffs and subsidies, and to privatize or liquidate some state-owned companies by creating IGAPE – the statement of expenditure surveillance unit – raising energy and water tariffs and creating regulatory agencies for fuel and oil.

Despite significant progress on macroeconomic stability and structural reforms, Angola is still suffering the effects of lower oil prices and production levels, with an estimated gross domestic product (GDP) contraction around 1.5% in 2018. The oil sector still accounts for one thirdof GDP and more than 90% of exports. Economic growth is expected to remain subdued in 2019 because of a lower oil price forecast and the oil production cap set by the OPEC agreement.

Higher oil revenues and fiscal consolidation resulted in an estimated budget surplus of 4.8% of GDP in 2018, the first surplus since 2013. The budget proposal for 2019 maintains the focus on fiscal consolidation and will be revised to take into consideration the recent decline in the oil price. Public debt has increased on the back of the currency depreciation and larger financing needs, reaching 85%  of GDP at end-2018. Angola will have to maintain gradual fiscal consolidation, improve revenue mobilization and implement strong reforms in public financial management practices to put public debt on a sustainable path.

Exchange rate misalignments were reduced in 2018 with greater exchange rate flexibility. Exchange rate misalignment and depleting foreign reserves prompted the National Bank of Angola (BNA) to abandon the fixed peg to the U.S. dollar and ease currency controls in January 2018. The kwanza has depreciated by 47% in nominal terms against the U.S. dollar between January 2018 and 2019. With greater exchange rate flexibility, the parallel-official exchange rate spread has decreased significantly and is fluctuating around 30%, compared to 140% at the beginning of the year. Gross international reserves reached $16.7bn in January 2019, covering close to six months of next year’s imports.

The Central Bank adopted a restrictive monetary policy to anchor inflation and to offset the impact of the exchange rate devaluation. Inflation declined from 22.7% to 18.2% year-over-year in January 2019 due to tight monetary and fiscal conditions, however anticipated utility and fuel price subsidy reforms are expected to increase prices level in the short term.

Financial sector vulnerabilities have been rising with the economic slowdown, and financial soundness indicators show a mixed performance. Some banks faced liquidity challenges in 2018 due to tight monetary policy and exchange rate depreciation. The BNA has implemented policies to address financial sector vulnerabilities, including a threefold increase in the minimum share capital requirement for banks. In the beginning of 2019, the BNA has ordered the closure of three commercial banks for failing to meet the new minimum capital requirements.

Source: World Bank