New Angolan State Budget for 2019 considers a more adverse scenario

10 June 2019

Last week the Angolan parliament approved a proposal for a review of the General State Budget (OGE) for 2019, which reflects a more adverse economic situation than initially expected, mainly due to the fall in oil prices.

The Economist Intelligence Unit (EIU), for example, considers that the review of the OGE “shows prudence on the part of the government”, but the Growth Domestic Product growth forecast (0.4%, compared to the initially forecast 2.8%), is ” very optimistic “and the recession that has plagued the country for three years is expected to continue in 2019, with a fall of 4.5% of real GDP.

This fall, the EIU said in its latest report on Angola, will result “from reduced oil production, compounded by lower government revenues and, in turn, lower spending and private consumption flow.”

The Standard Bank also recently lowered its forecasts for the Angolan economy and now points to a recession.

The OGE is based on a forecast of US$55 per barrel of oil (US$13 less than in the initial OGE), which is the country’s main source of income and it has had difficulties in diversifying its economy.

The government also reduced its forecast for oil production from 1.57 million barrels a day to 1.43 million barrels a day.

This decline in forecasts, according to the EIU, is the result of “continued slowness within the Angolan oil sector, caused by a combination of maturing fields, production problems and reduced investor appetite, given the lower global prices,” of oil.

Data released by the National Oil and Gas Agency (ANPG) in May showed that production is expected to decline to 1.2 million barrels a day and remain at that level over the next six years.

The budget contains a 9.0% reduction in expenditure, which may “affect the completion of much-needed infrastructure projects in the transport, education and health sectors, which is likely to reduce efforts to develop the non-oil sector,” it said.

The government, in order to finance budget deficits and support economic diversification, has been using external credit, and the debt level is already close to 80% of GDP, which is considered high given the size of the Angolan economy.

The country is under an International Monetary Fund (IMF) Extended Credit Facility (ECF), whose implementation has been marked by tension, according to the Africa Monitor newsletter.

Doubts about the ECF, according to the same source, have been extended to the business sector, which is critical of the government’s follow-up of IMF policies that they consider to be recessive, along with the lack of economic stimulus measures by the state, included in the revised 2019 OGE.

The IMF team, led by Mário Zamaroczy, has been insisting on meeting the facility’s goals, particularly in reducing spending and creating new taxes, with the introduction of Value Added Tax (VAT/IVA) scheduled for July, and excise duty.

The priority for the IMF remains macroeconomic and budgetary stabilisation, while on the Angolan government side there has been growing demand for relaxing the targets, to consider the behaviour of the economy that is more adverse than initially anticipated, Africa Monitor reported.

The outcome of the first evaluation under the facility was scheduled for March but has been postponed along with the payment of the second financial instalment of US$250 million. (Macauhub)