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The World Bank In Angola

Footprints supports Angola’s efforts to reduce poverty and promote economic growth by working with the government, development partners and civil society.

A vast country with a long coastline and central plateau, Angola thrusts inland across Southern Africa to border Namibia, Botswana, Zambia, and the Democratic Republic of the Congo. Its principal cities, including its capital, Luanda, look west over the South Atlantic to Brazil, another Portuguese-speaking nation (like itself). It has a population of more than 28.8 million (2016).

Economic Overview

President João Lourenço of the People’s Movement for the Liberation of Angola (MPLA) party, took power in September 2017, after winning 61.7% of the vote and an absolute majority of the legislature. Since then, the government has devalued the currency, tightened monetary policy, and resumed fiscal consolidation, as well as took the first steps to reform public utilities and fuels prices, reduce subsidies, and privatize or liquidate some state-owned companies. Two new laws that are essential to the competitiveness of the country have been approved: the private investment law and the antitrust law, which remove formal barriers to entry in the Angolan market.

Angola is moving gradually towards a more market-based, floating exchange rate regime with a nominal monetary anchor. The National Bank (BNA) promoted a large currency devaluation in the turn of the year, and has been promoting small monthly devaluations since then. It has eased currency controls, increased transparency in foreign exchange allocations through regular auctions and improved communication, in a move towards a more market-based and floating exchange rate regime. The local currency has devalued by 56.7% in relation to the US dollar from January to mid-2018.

Inflation decelerated to 20.2% in June 2018 as opposed to 26.3% in the end-2017, despite the currency devaluation.

External accounts are poised to improve on the back of higher oil prices and the exchange rate realignment. Angola external accounts went quickly from surplus to deficit due to the large drop in oil prices. The external deficit was reduced initially by currency control and import repression, but as the currency is devaluing and the oil prices are increasing, the real exchange overvaluation is being reduced.

Expenditures have been significantly reduced, but budget deficits were inevitable due to the even larger drop in revenues. Budget deficit decreased from 2014 (6.6% of gross domestic product (GDP) to 2015 (3.3% of GDP), but grew back again in 2016 and 2017, reaching 5.3% of GDP as a result of the slowdown in fiscal consolidation. Despite the increase in budget deficit, expenditures were substantially cut and maintained at low levels.

The largest expenditure cuts were to public investments and subsidies. For 2018, the budget foresees fiscal consolidation to rely on payroll and investment cuts. Both oil and non-oil revenues declined more acutely than expenditures and they are partially responsible for the slowdown in fiscal consolidation. Oil revenues went down from 23.8% of GDP in 2014 to 8.2% of GDP in 2016, but they have seen a small rebound in recent years and are expected to reach 10.1%of GDP in the 2018 budget.

Non-oil revenues went down, despite tax policy and administration measures to improve tax collection, reflecting the economic slowdown. Non-oil revenues declined from 9.1% of GDP in 2014 to 6.8%of GDP in 2017, but a small increase to 7.3% of GDP is expected in the 2018 budget.

Political Context

Angola has maintained political stability since the end of the 27-year civil war in 2002. In 2010, a Constitution established a presidential parliamentary system with the president no longer elected by direct popular vote but instead as the head of the party winning the most seats. The 2010 Constitution sets a limit of two, five-year presidential terms.

Internationally, Angola is becoming more assertive and demonstrating a more steadfast commitment to peace and stability in Africa, particularly in the Great Lakes region where Angola has secured a commitment to economic and political sanctions against the region’s armed rebel groups.

Development Challenges

Angola has made substantial economic and political progress since the end of the war in 2002. However, the country continues to face massive development challenges, which include reducing its dependency on oil and diversifying the economy; rebuilding its infrastructure; and improving institutional capacity, governance, public financial management systems, human development indicators, and the living conditions of the population.

Large pockets of the population live in poverty without adequate access to basic services, and the country could benefit from more inclusive development policies.

Last Updated: Aug 27, 2018

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