Angola will maintain high budget deficits in 2017/2021, EIU says

5 June 2017

Angola’s budget deficit is expected to remain high in the coming years, with 7.3% of gross domestic product projected for this year, and then a downward trend to reach 6.1% of GDP by 2021, according to the latest report from the Economist Intelligence Unit (EIU).

The report said the forecast of high budget deficits is due to the fact that oil prices, which account for 97% of Angolan exports, will continue on a persistent downward trend and added that the downward trend of the fiscal deficit should remain due to increasing the tax base.

The EIU also said that in the event that state oil company Sonangol once again this year fails to contribute to the public coffers, as happened in 2016, the budget deficit may be much higher.

The growth of the economy, given the poor results of the process of diversification, will again depend on the evolution of oil prices, with the EIU forecasting average GDP growth of 2.5% in 2017/2021, compared with 4.7% in 2011/2015.

Inflation is expected to remain high, albeit lower than the peak recorded in 2016, at around 30% this year to then start a downward trend to around 8.6% in 2021.

The rate of depreciation of the kwanza should also slow down compared to 2015/2016, but the continued absence of dollars in the banking system will lead the official value of the dollar to continue out of step with that of the black market.

The main objective of the National Bank of Angola, in terms of monetary policy, will be to contain price increases. Between January 2015 and June 2016 it increased the basic interest rate by 700 basis points to 16%.

Although this rate has remained unchanged since that date, the EIU expects further increases in the BNA Rate in the first half of the reporting period, given the impact on inflation of the weakness of the national currency against major currencies.

The EIU also pointed out, however, that given that the President of the Republic has a final say in the conduct of monetary and fiscal policies, it is fair to assume that the central bank will be under political pressure to adopt a more tolerant monetary policy if the economy does not grow again at expected rates as oil prices begin to rise moderately in 2017/2018. (macauhub)