The World Bank Report: Angola
A vast country with a long coastline and central plateau, Angola penetrates inland from southern Africa to the border with Namibia, Botswana, Zambia and the Democratic Republic of Congo. Its main cities, including its capital, Luanda, look to the west over the South Atlantic to Brazil, another Portuguese-speaking nation (like herself). It has a population of more than 28.8 million (2016).
President João Lourenço, from the Popular Movement for the Liberation of Angola (MPLA) party, took office in September 2017, after winning with 61.7% of the votes and a majority in the national assembly. Since then, the government has devalued the currency, made monetary policy more austerity, and resumed fiscal consolidation. It also took the first steps towards reforming public services and fuel prices, reducing subsidies, and privatizing or liquidating some state-owned enterprises. Two new laws that are essential for the country’s competitiveness have been passed: the private investment law and the competition law, which eliminate formal barriers to entry into the Angolan market.
Angola is gradually moving towards a floating, more market-based exchange rate regime with a nominal monetary anchor. The National Bank (BNA) promoted a large devaluation of the exchange rate at the beginning of the year, and since then it has been promoting small monthly devaluations. It facilitated exchange control, increased transparency in exchange allocations through regular auctions, and improved communication in a move towards a floating, more market-based exchange rate regime. The local currency depreciated 56.7% against the US dollar from January to mid-2018.
Inflation was reduced to 20.2% in June 2018, from 26.3% at the end of 2017, despite the monetary devaluation.
The external accounts are in a position to undergo improvements with the rise in oil prices and the realignment of the exchange rate. Angola’s external accounts swiftly moved from surplus to deficit, owing to the sharp drop in oil prices. The external deficit was initially reduced by exchange control and import repression, but as the currency is depreciating and the price of oil increasing, real exchange overvaluation is being reduced.
Expenditure fell significantly, but fiscal deficits were unavoidable due to the further decline in revenue. The budget deficit declined from 2014 (6.6% of gross domestic product (GDP) to 2015 (3.3% of GDP), but resumed growth in 2016 and 2017, reaching 5.3% of GDP as a result of the slowdown Despite the increase in the budget deficit, expenditure was substantially reduced and kept at low levels.
The largest spending cuts were implemented in public investments and subsidies. By 2018, the budget predicts that fiscal consolidation will depend on wage cuts and investments. Both oil and non-oil revenues have declined sharply than spending and are partly responsible for the slowdown in fiscal consolidation. Oil revenues fell from 23.8% of GDP in 2014 to 8.2% of GDP in 2016, but recorded a slight recovery in recent years and are expected to reach 10.1% of GDP in the 2018 budget.
Non-oil revenues suffered a reduction, despite the tax policy and administrative measures for improvement and collection of taxes, reflecting the economic slowdown. Non-oil revenues decreased from 9.1% of GDP in 2014 to 6.8% of GDP in 2017, but a small increase to 7.3% of GDP in the 2018 budget is expected.
Angola has maintained political stability since the end of the civil war in 2002, which lasted 27 years. In 2010, a constitution established a presidentialist parliamentary system with the president to cease to be elected by direct popular vote, but as the leader of the party to win the largest number of seats. The 2010 Constitution imposes a limit of two presidential terms of five years each.
Internationally, Angola is becoming more assertive and showing a firmer commitment to peace and stability in Africa, particularly in the Great Lakes region, where Angola has committed itself to implementing economic and political sanctions against the region’s armed rebel groups .
Angola has made substantial economic and political progress since the end of the war in 2002. However, the country continues to face huge development challenges, including reducing dependence on oil and diversifying the economy, rebuilding infrastructure , enhancing institutional capacity and improving governance, public financial management, human development indicators and living conditions of the population.
Considerable segments of the population live in poverty without adequate access to basic services and the country could benefit from more inclusive development policies.