IMF Aids Angola To Diversify Revenue Streams

by Ulrika Lomas, Tax-News.com, Brussels

30 November 2009

The International Monetary Fund has concluded a 27-month Stand-By Arrangement with Angola, which will provide support of SDR (Special Drawing Rights) of 858.9m (USD1.4bn) to help encourage growth in the non-oil sector revenues and establish a sovereign wealth fund.

The IMF-supported economic program aims at stabilizing revenues to rebuild international reserves. While the immediate goal is to mitigate the repercussions of the global crisis, the program will also include a reform agenda aimed at fostering the growth of the non-oil sector.

The key pillars of the program are: a determined fiscal effort that aims to reduce the non-oil primary fiscal deficit significantly in 2010; and measures to safeguard the financial sector.

“Angola has suffered a significant terms of trade shock because of the sharp drop in oil prices. The global crisis hit the country during a period of rapid expansion and strong pro-cyclical policies, fueled by oil revenues. The subsequent large drop in oil revenues caused a sharp slowdown in the economy, weakening of fiscal and external positions, depreciation of the exchange rate, and a rise in inflation,” a statement from the IMF explained.

Commenting on the agreed arrangement with Angola, and stressing the need for tax reforms, Takatoshi Kato, Deputy Managing Director and Acting Chair of the IMF Executive Board, stated:

“The Angolan authorities are to be commended for their strong commitment to a comprehensive reform program that addresses the macroeconomic imbalances which emerged in the face of the global economic crisis.”

“The program includes a determined effort to restrain public expenditures, while providing adequate resources for social spending and vital infrastructure projects. To ensure adherence to the fiscal program, the authorities are advised to conduct a mid-year review of budget developments and make adjustments if necessary. The authorities’ intention to enhance fiscal transparency, especially in the oil sector, is welcome.”

“The authorities are committed to take further steps to improve fiscal management over the medium-term, increase non-oil revenues by reforming the tax system, and de-link the fiscal stance from short-term movements in oil revenues. In this regard, their plan to establish a Sovereign Wealth Fund is welcome.”

“Angola’s financial soundness indicators appear to be at comfortable levels. Nevertheless, continued vigilance is needed, and measures will be taken to strengthen further the regulatory and supervisory framework,” Kato concluded.

Other observations of the IMF mission included that:

• GDP is projected to be broadly flat in 2009, reflecting a sizeable drop in oil production (-6%) and a sharp slowdown in the pace of non-oil growth (to 6.75%, down from 19%, its average during 2005–08); and
• The plunge in oil revenues in the first half of 2009 has shifted the fiscal and external surpluses to substantial deficits. As a result, through June 2009, usable reserves fell by USD6bn to USD10bn.
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