Angola’s budget deficit should be reduced to 5.9% of GDP in 2018, EIU says

28 November 2017

The Angolan budget deficit should be reduced slightly to 5.9% of Gross Domestic Product (GDP) in 2018, after reaching an estimated 6.9% of GDP this, according to the Economist Intelligence Unit (EIU), in its latest report on the country.

The document added that although the order of the day is economic diversification, the performance of the oil sector will continue to have a substantial impact on the budget balance between 2019 and 2022.

Given that the pressures to meet public spending targets will remain high, the budget deficit in these four years should reach an annual average of 6.5% of GDP.

However, in the second half of the period the deficit should be lower, due to an increase in the price of a oil, which is expected to be more than 5% of the value seen throughout this year, but still quite far from the price of US$85 dollars needed to ensure that the budget is balanced.

The EIU report noted the government had authorised the minister of Finance to issue euro-bonds of up to US$2 billion, after an initial issue of US$1.5 billion, but had not decided on a timetable for this issue.

The former (2010/2015) governor of the Angolan central bank, José de Lima Massano, returned to the central bank on the orders of current President João Lourenço, as during his previous term he had managed to stabilise the exchange rate and reduce inflation to record lows.

The analysts expect the interest rates to rise in the first half of the period under review (2017/2022), taking into account the effects of the weakness of the national currency, the kwanza, on prices.

The EIU noted, however, that the President of the Republic has the final word on fiscal and monetary policy, and that the central bank may be the target of some political pressure in order to adopt a less rigid monetary policy if the rates of growth of the economy do not recover in the short to medium term.

The EIU’s forecast for economic growth for Angola is 2.7% this year, before falling back to 2.4% in 2018 and 2019, increasing in the following two years to 2.5% and 2.7%. (macauhub)