Angola’s extraordinary revenue should be used to reduce public debt, IMF says

24 May 2018

Any extraordinary tax revenues should be used to eliminate domestic arrears to suppliers and reduce public debt, the International Monetary Fund (IMF) recommended to the Angolan government in its annual review of the Angolan economy under Article IV of the institution.

The document released on 21 May in Washington points out that the IMF board has stressed the need for a new gradual fiscal consolidation to place public debt, which this year should reach 72.9% of Gross Domestic Product (GDP), on a clear downward trajectory taking into account the projected oil prices in the medium term.

The IMF’s forecast for public debt as a percentage of GDP remains broadly unchanged from that announced in the Spring Outlook last April, with a drop to 69.9% by 2019.

Budgetary consolidation, the IMF argues, “must be based on the mobilisation of more domestic non-oil revenues, including through improvements in tax compliance and planned introduction of the VAT, as well as greater rationalisation of public expenditure and improvement of the quality of public investment, while expanding well-targeted social programmes.”

The IMF directors consider that “the policy mix in the run-up to the August 2017 elections – fiscal expansion and fixed exchange rates – has led to further erosion of budgetary and external buffers,” but they point out that “the government of President João Lourenço focused its attention on improving governance and restoring macroeconomic stability.”

The priorities of the new government, moreover, are commended by the IMF, which says that “directors praised the government’s reform programme, which addresses the challenges of post-conflict development, restore macroeconomic stability and improve the business climate.”

However, they caution that “the more favourable outlook for oil prices presents a unique opportunity to address macroeconomic imbalances, including erosion of fiscal and external margins, and to reduce dependence on oil.”

The IMF expects Angola to have real economic growth of 2.2% this year and 2.5% in 2019 and estimates that the country’s GDP grew by 1.0% in 2017.

Preliminary figures from the Annual National Accounts released last week by the National Statistics Institute (INE) indicate that the Angolan economy is expected to have contracted by 2.5% in 2017. (macauhub)