Why is Angola seeking an IMF loan now?
Angola’s government recently reached out to the IMF for talks on a loan deal in exchange for more structural reforms. Angola is Africa’s third-largest economy and the continent’s second largest oil-exporter. The economy was badly hit by the plunge in oil prices after 2014.
President João Lourenço was elected last year, taking over from José Eduardo Dos Santos who had ruled the country with an iron fist for nearly 40 years. President Lourenço has attempted to revive the faltering economy with reforms that have included devaluing the currency by over half against the U.S. dollar and promising to root out government and state corruption. Nonetheless, the economy is still plagued by foreign currency shortages and rising bad loans in banks. The country is also suffering from declining oil production from it’s aging offshore oil rigs.
Angola first reached out to the IMF last year for technical assistance for its reforms, although it was without a financial component. The government is now seeking a loan from the IMF and the Fund stated that it, “stands ready to help the authorities address Angola’s economic challenges by supporting their economic policies and reforms.”
The Angolan government’s decision to seek a loan now from the IMF came amid the further erosion of fiscal and external buffers and against the backdrop of worse-than-expected economic growth, which has been hard hit by the unsustainable fiscal policies favored in the run-up to last year’s elections. As it stands, debt repayments constitute nearly half of the state budget and have eaten into public spending. Moreover, the devaluation of the currency has yet to deliver in terms of shoring up foreign reserves, while the continued decline in oil production has eroded gains from higher prices and contributed to dollar shortages.
The IMF loan appears intended to provide the new government greater political cover as it pursues a more aggressive reform agenda, although it has already taken several important steps in cracking down on corruption and laying the groundwork for structural changes. Patronage politics remains deep-rooted among Angola’s political elite, and a notable priority of the new administration has been to remove relatives of the former president from positions of power. Moreover, in an effort to bolster foreign reserves, the government scrapped the kwanza’s peg to the dollar earlier this year—although the currency still remains significantly overvalued. Meanwhile, the Central Bank has also been in the process of revamping its monetary policy framework to focus on base-money targeting.
Even if progress has been rather slow thus far, diversification of the oil-dependent economy appears to be underway. New competition laws have been signed, as have new rules to foster foreign investment. Moreover, the government introduced a new export-substitution program and it can be gathered from Lourenço’s appeal to the IMF—especially during a period of rising oil prices—that the new president hopes for even further-reaching economic reforms and plans to use the conditions of any loan as justification for the much-needed changes. The IMF loan will provide cover to the government’s plans, leaving the door open for much wider-sweeping changes than could be expected without one.
The Angolan economy is seen returning to growth this year, on the back of favorable global oil prices, which bodes well for the external sector of Sub-Saharan Africa’s second-largest oil exporter. Meanwhile, over the longer term, economic activity should benefit from fiscal consolidation measures, moderating public debt and the transition away from a pegged exchange rate—the key pillars of the President João Lourenço’s economic reforms. FocusEconomics panel of 11 Angola analysts projects GDP to expand 1.9% in 2018, which is unchanged from last month’s forecast, and 2.3% in 2019.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Almanas Stanapedis, Research Team Manager
Date: September 17, 2018
TagsAfrica Base Metals Oil OPEC precious metals public debt USA Vietnam Eurozone Australia France European Union Budget deficit Colombia Forex Inflation Italy GDP United States TPS Lagarde Unemployment rate Consensus Forecast Nordic Economies Precious Metals Commodities Commodities Banking Sector Ukraine Asian Financial Crisis Housing Market Germany Trade Latin America Cannabis Eastern Europe digitalcurrencies centralbanks Infographic Spain UK India Copper Brazil Greece economic growth Israel Asean Euro Area Emerging Markets Canadian Economy Iran TPP United Kingdom Mexico Gold Tunisia Central America oil prices Economic Debt G7 Asia MENA IMF Sub-Saharan Africa Major Economies Agricultural Commodities Exports South Africa Economic Growth (GDP) Energy Commodities Healthcare Economic Crisis Draghi Costa Rica; GDP; Budget Palladium Venezuela Investment Turkey chile Canada Japan Cryptocurrency Political Risk Russia Argentina Brexit Base Metals Commodities Economists Portugal Bitcoin Nigeria election scotiabank China interview Company News CIS Countries Resource Curse Exchange Rate
Over the past month, the Euro area has faced a severe outbreak of new Covid-19 cases. We take a look at what that m… https://t.co/SEQpmBBlSi
13 hours ago
In our latest analysis on the ASEAN region, Economist Alexandros Petropoulos takes a closer look at the Malaysian g… https://t.co/TXCXmXFycI
1 day ago
A fiscal crisis looms in Tunisia, the birthplace of the Arab Spring, with the country needing to find $5bn urgently… https://t.co/8GStZ9mzF7
2 days ago
India’s economy was firing on all cylinders at the start of FY Q3 (Q4 2021). Can this momentum be sustained for the… https://t.co/BexWdq1CEi
3 days ago
In our latest analysis on the Sub-Saharan African region, Economist Jan Lammersen takes a closer look at the Nigeri… https://t.co/PsSLgFjYyA
3 days ago