Public Debt in Angola

Angola - Public Debt

Parliament approves 2021 draft budget aimed at narrowing fiscal deficit, but risk of default remains

In late November, parliament approved the government’s 2021 draft budget, which passed a final vote14 December. The draft bill envisages a narrowing of the fiscal deficit and bases its revenue inflows on a conservative oil price estimate. As such, narrowing the budget shortfall should be attainable; however, some of our panelists are skeptical due to the possibility of weak revenue growth, and the fiscal position will remain extremely precarious regardless. Moreover, authorities have vowed to continue with reforms to address the economic imbalances resulting from the pandemic, amid growing public dissatisfaction with the government, although past reform implementation under the auspices of the IMF-backed program has been patchy.

On the expenditure side, the budget foresees spending reaching AOA 8.9 trillion (USD 13.5 billion) in 2021, which is up from the revised AOA 7.4 trillion in 2020. Policy will be aimed at consolidating macroeconomic stability and kickstarting the economic recovery, following years of contracting output. A key policy point in the coming years relates to improving the business sector, partly through a privatization program—initial public offerings are expected to commence in 2021. Moreover, the budget earmarks 39.5% of primary expenditures to strengthen the social sector, in order to combat poverty and enhance social inclusion.

On the revenue side, the government expects to earn AOA 7.9 trillion, in part due to a notable uptick in tax inflows as the oil sector recovers (2020 revised figure: AOA 6.1 trillion). The assumptions are based on an average oil price of USD 39.0 per barrel, which appears somewhat cautious. Moreover, authorities expect a rebound in the non-oil sector. All in all, the government foresees a fiscal deficit of 2.2% of GDP in 2021—a narrower shortfall than the 4.0% of GDP projected for 2020.

The Consensus is for the government to meet its fiscal deficit target for 2021. However, some panelists are less optimistic, while downside risks and the possibility of default linger.

Fitch Ratings, commenting on the budget, stated:

“The fiscal deficit forecast in Angola’s 2021 draft budget is achievable although there are downside risks to non-oil revenue collection targets. A depreciating Angolan kwanza and stagnating GDP growth will contribute to keeping the sovereign at risk of default, even as debt re-profiling efforts have lowered near-term debt-servicing costs. […] Fitch downgraded Angola’s rating to ‘CCC’ in September owing to a combination of deteriorating public finances and external vulnerabilities. Angola’s rating now incorporates the real possibility of a default event resulting from the high level of public debt. […] Angola’s overall debt burden may mean that the IMF can no longer approve remaining programme disbursements, or agree to a follow-on programme once the current programme ends in 2021, without significant debt restructuring that includes private-sector participation. Without IMF support, we believe that Angola would be hard pressed to find sufficient sources of external financing.”

FocusEconomics panelists expect the fiscal deficit to reach 1.9% of GDP in 2021, which is up 0.2 percentage points from last month’s projection. For 2022, panelists expect the budgetary shortfall to narrow to 1.5% of GDP.