However, the slow growth affected fiscal sustainability. The budget deficit increased from -AOA 406.6 billion (-3.3% of GDP) in 2015 to -AOA 1.2 trillion (-6.0% of GDP) in 2017[3]. Meanwhile, total public debt increased from an average of 69.5% of GDP from 2015 to 2017, to 72.9% of GDP in 2018[4]. Public debt has remained above the SADC macroeconomic convergence target of 60.0% of GDP since 2015.
Angola’s fiscal situation is, however, sustainable. Risks to debt sustainability are mitigated by the availability of buffers such as the narrowing budget deficit, significant accumulated foreign exchange reserves, financing on semi-concessional terms, and strong ownership of ongoing reforms. The budget deficit is projected to have declined by 53.1%, to -AOA 581.5 million in 2018[5]. Although net foreign reserves have declined to USD 13.3 billion in 2017 (2015: USD 24.3 billion), they are projected to stabilise at an annual average of USD 11.5 billion from 2019 to 2023[6].
Public debt is projected to decrease from 72.9% of GDP in 2018, to an annual average of 65.0% from 2019 to 2023[7]. Although this is above the regional limit, Angola’s public debt should remain sustainable if there are no further external shocks leading to a depreciation of the AOA, and the government continues with gradual fiscal consolidation and structural reforms to improve governance and the business climate structural reforms initiated in 2018[8]. Despite the positive perspective, the public debt of Angola demands constant surveillance, as it depends on sustaining and improving real GDP growth and avoiding or mitigating depreciation during exchange rate shocks.
The foregone analysis of total public debt provides a general perspective on the macro sustainability of Angola’s public debt. However, a deeper analysis of other sustainability indicators is needed to the underlying drivers for sustainability of Angola’s public debt. Angola’s real GDP growth rate averaged 1.1% from 2015 to 2017 compared to the effective interest rate on public debt which averaged 5.4%[9]. In 2018, Angola’s GDP growth rate is projected to have increased to 2.2% compared to the effective interest rate on public debt of 10.0%[10].This means that the cost of servicing Angola’s public debt has increased which undermines public debt sustainability. In the forward-looking medium-term from 2019 to 2023 Angola’s real GDP growth rate is projected to increase to 3.9% compared to an effective interest rate of 7.3%[11]. Real GDP growth has underperformed the effective interest rate on public debt for most of the years in the periods reviewed above. Therefore, public debt-servicing costs are expected to continue increasing in relative terms which should provide little room for the government of Angola to increase its capital expenditure or rebuild fiscal buffers.
While Angola’s public debt remains sustainable, public debt-servicing costs are projected to increase slightly. With the slow GDP growth, the government of Angola was forced to continue borrowing which drove up public debt and debt-servicing costs. However, this situation should change in future since the IMF approved an Extended Fund Facility of USD 3.7 billion at concession or low interest rate for Angola in December 2018.
SADC member states manage public debt in line with the guidelines of Annex 2 of the Protocol on Finance and Investment previously known as Memorandum of Understanding in Macroeconomic Convergence, which advocates avoiding increasing their public debt-to-GDP ratios and encourages member states to monitor and measure these ratios as an indicator of macroeconomic convergence. The Annex also advises for member states to maintain a public debt-to-GDP ratio of no greater than 60.0% of GDP.
In a bid to maintain sustainable public debt, the Angola government regulates public debt issuance and management of direct and indirect public debt through rules of negotiation and contracting debt. These rules also determine the powers of who can contract public debt such as the head of departments who are responsible for negotiating and contracting AOA-denominated debt up to a maximum value equivalent to USD 10.0 million[12]. High levels of public debt need to be authorised by the Holder of the Executive Power which directly rests with the President who also authorises the issuance of the direct public debt securities to be monthly and weekly issues, whilst interests are to be monthly paid[13].
Public debt sustainability anchored in the macro stabilisation program which has been adequate and effective in reducing these imbalances. If implemented successfully, the programme is expected to strengthen fiscal and debt sustainability, reduce inflation, and improve financial sector stability over the medium term. The economic diversification agenda–backed by the NDP 2018-22 will be instrumental to enhance private sector-led growth and competitiveness over the medium term, which will help reduce the volatility and pro-cyclicality from commodity dependency and support macroeconomic stability[14].
In conclusion, Angola’s public debt sustainability has been recently inconsistent, remaining above the SADC macroeconomic convergence target of 60.0% of GDP since 2015. The country’s fiscal situation appears, however, to be sustainable due to the prognostics of budget deficit declining, public debt decreasing, and the stabilization of net foreign reserves and gross international reserves. Risks to debt sustainability are now being mitigated by the availability of buffers such as the narrowing budget deficit, significant accumulated foreign exchange reserves, financing on semi-concessional terms, and strong ownership of ongoing reforms. But the maintenance of this pattern is fundamental in order to guarantee its public debt sustainability, as there is no good news regarding oil prices recovery soon. For this reason, economic diversification and fiscal rigidity and surveillance are mandatory to keep Angola’s public debt in the sustainable direction.
[1] IMF 2018. Angola 2018 Article IV Consultation Report, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 29 May 2019].
[2] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[3] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[4] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[5] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[6] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[7] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[8] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[9] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[10] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[11] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[12] IMF 2018. Angola 2018 Article IV Consultation Report, ibid.
[13] ANGOP 2018. Angolan Government Regulates Rules of Public Debts Issuance, on the Angola Press Website, viewed on 28 January 2019, from http://www.angop.ao/.
[14] WB 2018. Angola Growth and Inclusion Development Policy Financing, World Bank: Washington, D. C. Available At: http://documents.worldbank.org/ [Last Accessed: 10 March 2019].
