Angola - Economic Report Index I. Assumptions on National Policy and External Environment... 2 II. Recent Trends... 3 A. Real Sector Developments... 3 B. Monetary and Financial sector developments... 5 Monetary Base... 7 Monetary Aggregates... 8 Claims to the Economy... 9 Inflation Rate... 10 C. Fiscal Sector Developments... 11 D. External Sector Developments... 12 Current Account... 12 Exchange Rate... 13 International Reserves... 14 III. Forecast Summary Policy issues and Uncertainties... 15 IV. Summary Table for forecast... 16 1
I. Assumptions on National Policy and External Environment The current global economic situation is raising concerns due to the negative downtrend observed in the commodity prices, especially the oil prices, which is becoming an enormous challenge for the growth of the Angolan economy. To be more specific, the current economic environment enhanced by the reduction of oil prices in international markets, led to a sharp decrease in exports of crude oil and consequently a decrease in the accumulation of foreign exchange reserves. This decrease in foreign exchange reserves has caused great difficulties to obtain foreign currency for settlement of transactions with the outside, whether at company level or individual level. Thus, exchange rate of the primary market suffered a decline year on year. Furthermore, this shortage of foreign exchange and its consequent depreciation is even more visible if it is taken into account depreciation in the informal market. Therefore, in 2015, Angolan economy suffered a major structural shock with the oil price drop in a context where there is a great dependence on the oil export revenues, macroeconomic imbalances were recorded, and the forecasts for the coming years are filled with uncertainty in what the evolution of the main country export product is concern. For 2016, the available information is too preliminary, what make it difficult to predict accurately the behavior of the economy. It is important to mention that despite the oil price decline had been more intense in 2008/2009, the policy responses were faster in 2015. In a short period of time the Government Budget was adjusted from a oil price of USD 81 to USD 53; a committee to coordinate the Fiscal and Monetary Policies was established in order to accompany and supervise with high regularity the monetary and exchange rate developments as well as the dynamics of the fiscal policy table, which was largely influenced by developments in the domestic market of debt securities. Overall, it was avoided a significant drop in external reserves, enabling significant currency depreciation, ensuring with this the external solvency of the economy in more than six months of imports and the control of public debt trajectory. In the Monetary policy side, the BNA implemented several policies, where, among others, one can mention the reduction of the interest rate Overnight Absorption Facility; the change in the reserve requirement ratio in national currency from 15% in January 2015 to 25% in June; the increased sales of foreign currency in the exchange market; the devaluation of the national currency at 5,75%, the Mandatory establishment of captive accounts by commercial banks in national currency with the BNA, Changing the Operating Rules of Money Exchange, allowing the sale of foreign currency to exchange residents and the increased of Liquidity Lending Facility interest rate. 2
Therefore, the macroeconomic environment was marked by the fiscal, monetary and exchange rate tightening. Nevertheless, as the economy suffered a structural shock, there is still a need for structural reforms in order to recover economic growth, accelerate and sustain it, with job creation, diverse production of goods and services and lower structural inflation. Finally, the non-oil sector has been registering higher GDP growth rates than the oil sector in recent years, though it still represents a smaller portion of total domestic production. Government s medium term strategy is intended to reverse this position and reduce dependency on a narrow range of commodities, thus protecting domestic economy from international oil price volatility. II. Recent Trends A. Real Sector Developments In the period under review, 2010 and 2014, the strengthening of public accounts, the accumulation of foreign exchange reserves, the stability of the foreign exchange market, the historical record on the inflation rate and the de-dollarization process in the economy, led to greater macroeconomic stability in the country, this being recognized by several international organizations. During this period, there has been a moderate domestic growth rate, registering 4,75% at the end of 2014, which represents a slowdown in growth, when comparing to 6,79% recorded in the previous year. Figure 1: Angola Real GDP Growth Rate (%) Source: BNA/MinPlan 3
The GDP growth rate in 2014 was mainly derived by the slowdown in the non-oil sector in about 2,7 p.p. (from 10,9% in 2013 to 8,2% in 2014) and in the oil sector, which contracted -1,7 p.p. (from -0,9% in 2013 to -2,56% in 2014). These are the results of a decreasing in the Agriculture sector growth of 30,4 p.p. (42,27% to 11,9%), while the contribution to real GDP growth of this sector increased its share from 9,9% in 2013 to 11,3% in 2014. However, the sharp slowdown in the agriculture sector was partially offset by acceleration in the Fisheries and derivatives sector (+ 16,6 p.p.) and Market Services (+ 1,0 p.p.). Figure 2: Real GDP Structure (%) Source: BNA/INE The sectors whose estimations are more promising in 2014, in terms of growth, are: Fisheries and Derivatives (19,05%), Energy (17,3%), and Agriculture (11,9%) 4
Figure 3: Real GDP Structure (%) Source: BNA/INE Despite the fact that Angola is being affected by the drop on oil prices over the period of 2014/2015, Angolan economy is expected to grow 4,03% in 2015, due, especially to the real growth of the oil sector (7,79%). The growth of non-oil sector (2,4%) will be supported by agriculture (2,50%), manufacturing (2,57%), construction (3,48%) and market services (2,2%). Additionally, it is important to mention that, concerning the GDP on the demand side, the National Bureau of Statistics is doing a work of restructuring and revision of the methodology of the data capture. There is already the compilation of the data until 2013. At the moment the official statistics remain the one produced by the Ministry of Plan. B. Monetary and Financial sector developments In November 2011, the National Bank of Angola implemented the New Operational Framework Monetary Policy, whose primary objective is to maintain price stability. Until then the conduct of monetary policy aimed to control the monetary base, the nominal anchor of monetary policy. The New Framework is characterized by the use of instruments such as: (i) (ii) (iii) (iv) Reserve requirement; the purchase and sale of foreign currency; Placement of public securities; and open market operations 5
In the context of monetary policy, decisions are made in the Monetary Policy Committee, which meets monthly to analyze the economic developments. In order to ensure effectiveness and operability of the monetary policy transmission mechanism and ensure price stability, the new framework introduced the concept of Basic Interest Rate, the BNA rate, which serves as a signal to the market, of monetary policy stance and simultaneously reference to the rates offered in the interbank money market. Since 2012, BNA has been maintaining an accommodative monetary policy and reduced the BNA interest rate by 1,50 p.p. to 9,00% in 2014, following the favorable evolution of the main economic indicators, among them the continued slowdown in inflation rate. In 2014, Angola kept the one digit inflation rate (7,48%), as a result of the good performance of the monetary policy. However, the international oil price fell, which led to a lack of foreign currency in the country to settle external transactions and, consequently, led to exchange rate devaluation. This exchange rate devaluation originated higher inflation levels, forcing the central bank to take another approach and to increase BNA interest rate to 10,5% in the second half of 2015. Apart from the increase in the interest rate, the National Bank of Angola decided on other monetary tightening measures, which are presented below: Reduction of the interest rate Overnight Absorption Facility to 0% in the Monetary Policy Committee of February 2015 in order to promote lending by commercial banks and some slack in terms of liquidity for the placement of government securities; Change in the reserve requirement ratio in national currency for 25% of which 10% can be met through Government Bonds issued from January 2015, belonging to the respective bank's portfolio and weighted according to maturities as Instructional 8/2015, with the aim of reducing the liquidity of the financial system and create at the same time, conditions for financing the state budget; Increased sales of foreign currency in the exchange market in order to partially satisfy demand for foreign exchange that has been observed by reducing the negative effects on the real economy; Devaluation of the national currency at 5.75%, at June 5, 2015 and increased direct sale this week for USD 836 million and USD 100 million auction; Mandatory establishment of captive accounts by commercial banks in national currency with the BNA, with a corresponding balance the need to buy foreign currency for the following week, according to the Instruction 10/2015; Resumption of OMA in order to make a fine control of liquidity of the financial system; 6
Changing the Operating Rules of Money Exchange, allowing the sale of foreign currency to exchange residents up to the amount of USD $ 5,000.00, according to Instruction No. 07/2015 of 28 May, in order to promote transparency in the exchange market; Increased of Liquidity Lending Facility interest rate to 12.5% in the Monetary Policy Committee remarkable held in September 2015; Increased of Interest Rate Overnight Absorption Facility to 1.75% in the Monetary Policy Committee extraordinary conducted in September 2015; Monetary Base Between December 2010 and December 2014, the monetary base expanded 45,78%. Foreign Net Assets in the reporting period increased 77.30%, to move from Kz 1.731.026,45 in December 2010 to Kz 3.069.093,01, in December 2014, while the Internal Net assets grew 115.48%, to move from Kz 947.203,63 in December 2010 to Kz 2.041.022,93 in December 2014. This trend may be being influenced especially by the ability to mobilize external resources, due to the weight of the oil sector on GDP and a bit for maintaining the equilibrium of the balance of payments, than the natural combination of monetary and fiscal policies. During the reporting period, the ratio relating to the degree of liquidity of the economy (M2 / GDP), weight indicator of bank deposits and currency in circulation over the whole economy, increased by 6.80 p.p., from 34.15% in 2010 to 40.95% in 2014. This figure is slightly below the average for sub-saharan Africa (45.2%) and well below the average for the advanced economies (80%). Whereas in 2014, 50.98% of Angola's population now has access to banking services, it is unquestionable the dynamics and growth potential of the economy. Figure 4: Monetary Basis Source: BNA In the first eight months of the year, observed an expansion of monetary basis at 13.46% and a growth of monetary basis in national currency at 58.96%. 7
It is estimated for December 2015 and December 2016, a monetary base (broad) of Kz 1.680.467,40 Million and Kz 1.811.339,13 Million, respectively, which represents a growth of 6,32% and 7,79%. In respect to the restricted monetary base, in December 2015 it is expected Kz 1.600.043,93 Million and December 2016 it is expected Kz 1.726.296,76, growth 29,28% and 7,89, respectively. Monetary Aggregates Between December 2010 and December 2014 the monetary aggregates M1 and M2 expanded from Kz 1.663.640,46 Million and Kz 2.589.839,20 Million, to Kz 3.096.861,62 Million and Kz 5.103.482,93, respectively, with the variation in M1 (82.16%) lower than M2 (94.33%). With regard to M3, this expanded 90.80% in the same period. This behavior may reflect the slight increase in the preference for liquidity and increased savings of economic agents and the conduct of monetary policy that has been accommodative. In light of the economic stability achieved in recent years, improvements in the management of monetary policy were observed, with the introduction of new operational framework of monetary policy and regulation (credit limitation in foreign currency and New Foreign Exchange Law of the Petroleum Sector) in the period under review. The national currency has gained more weight in the calculation of total deposits, while foreign currency have reduced. In 2010, the foreign currency deposits represent 54.16% of total deposits, while deposits in national currency constituted only 45.84%; as a result of dedollarization policy of the economy, there was an inversion in the structure of deposits by currency through deposits in national currency representing 64.48% of total deposits and foreign currency 35.52%, representing a gain to the national economy reflecting the improved of monetary policy conduct and scope of credit objectives in national currency. Until August 2015, the Monetary M3 expanded by 5.40%, closing at kz 5.350.850,00 Million, this increase may be associated with expansion of net credit to the Central Government in 134.63%. Although the observed expansion, the M3 is below the programmed value for the year 2015, in which it is expected an increase of 11.45%. Relative to M1 and M2, there is an increase of 4.30% and 5.48% respectively in the first eight months of 2015. 8
Figure 5: Monetary Aggregates Source: BNA The perspectives to December 2015 point to growth of M3 in 11,45% for 5.695.301,35 and an acceleration of 2.12 p.p. in 2016. Claims to the Economy The claims on the Economy are in an important measure of economic growth. The current scenario shows an exponential growth of this indicator, between December 2010 and December 2014. With an increase of 77,91% over the last four years, claims on the economy rose from Kz 1.656.245,31 Million in December 2010 to Kz 2.946.702,35 Million, in December 2014. The private sector which constitutes the leverage engine of economic growth in any economy, has seen its credit grow at 89,39%, changing from Kz 1.505.898,54 Million, in December 2010 to 2.852.043,17 Million in December 2014, against the decline of claims on the public sector in 37,04% (Kz 150.346,77 Million in 2010 to Kz 94.659,18 Million in 2014. The claims on the Central Government growth at 983,29% between December 2010 and December 2014. This reflected the Government s response to the necessity of investment in infrastructure in order to boost economic activity by creating a favorable environment for domestic and foreign private investment. Figure 6: Claims to the Economy 9
Source: BNA In 2015 claims to the economy grew 9,12%, due to increased claims on the private sector (9,15%) and the claims on the public sector (7,97%). The perspectives to December 2015 show a growth of 10,70% of claims to the economy, supported by the growth of public claims and private in 45,125 and 9,56%, respectively. For 2016, the previsions about the claim to the economy point a deceleration of 0,31 b.p. to 2015 Inflation Rate As monetary authority, the main purpose of the BNA has been, over 2014, to promote price stability in Angola. In fact, inflation remained until June a continuous downward trend, the month in which reached its historic low of 6,89%. After reaching this point, inflation reversed to an upward trend that holds up to the present day. Annual inflation closed the year of 2014 standing at 7,48%. Figure 7: Annual I nflation Rate (%) Source: BNA/INE 10
The stability of the exchange rate Kz/USD throughout the first three quarters of 2014 was due to the food international prices at the international market and the performance of the monetary policy. However, the devaluation of the currency that has been observed, more sharply since the last quarter of 2014 until today, has been one of the causes that seem to be pushing the price level up. This devaluation was due to the shortage of foreign currency to enter into the economy, therefore, the currency had to adjust its value until a balance between demand and supply of foreign currency, anticipating the need to prevent deterioration of international reserves. After three years of single digit inflation and a significant deceleration, it is expected for 2015 a two digit inflation rate, 13,80% almost the same as the inflation registered in 2009 (13,99%). However, the tight monetary policy, it s helping to maintain the general level of prices not higher than the actual levels. C. Fiscal Sector Developments Angola s debt outlook appears manageable, as it is under 60.0%. According to the government budget, Angola registered a debt of 37,78% in 2010, 30,64% in 2011, 27,53% in 2012, 24,53% in 2013 and 30,99% in 2014. For 2015 it is anticipated, again, a rise that will result in a 43,99% of GDP. The rationalization of current expenditure has generated fiscal surpluses of 6,81%, 10,25%, 6,66% and 0,27% of GDP in 2010, 2011, 2012 and 2013, respectively. However, in 2014 the fiscal balance reached a deficit of Kz 819,37 billion, (6,57 % GDP) due to a sharp decline in the collection of oil taxes. By the same reason, in 2015 is expected a deficit in Kz 672,42 billion (5,28% of GDP), however lower than 2014. Figure 8: Budget Balance (in % of GDP) Source: BNA/MinFin 11
Finally, reforms have been made in the tax system in order to allow an efficient inspection of taxes collection. A new system is being implemented in order to increase the non-oil taxes. D. External Sector Developments Current Account In 2014, the Overall Balance showed a deficit of USD 4.4172,9 million, representing a decrease of USD 4.502,1 million over the last period, whose balance surplus stood at USD 84.2 million. This result was influenced by the behavior of the capital and financial account and the current account balances, which decreased 69,9% and 144,59%, respectively. In 2014, the current account registered a decrease of 144,59% due to the decrease in exports against the increase recorded in the imports. The exports have reduced 13,3%, from USD 68.246,5 million in 2013 to USD 59.169,9 million in 2014. On the other hand, the imports of goods increased from USD 26.343,96 million in 2013 to USD 28.586,95 million in 2014, representing an increase of 8,51%. In fact, current account showed a deficit of USD 3.722,4 million against a surplus of USD 8.348,37 million in 2013, reflecting a decrease of USD 12.070,8 million. Figure 9: Current Account Balance (US$) Source: BNA For 2015 it is expected that the Balance of Payments continue in deficit due to the higher deficit expected for the current account, USD 13.393,9 million (-259,82%). 12
Exchange Rate The average exchange rate (Kwanza against the US dollar) has been relatively stable over the last years with rates of 92.02 Kz/USD in 2010, 93.85 Kz/USD in 2011, 95.44 Kz/USD in 2012 and 96.48 Kz/USD in 2013. The stability of the exchange rate was the result of the macroeconomic stability experienced over the years. In 2013, the consolidation and stability in the foreign exchange market, was supported by the accumulation of gross international reserves. The exchange rate on average, has been depreciating in lower magnitudes compared to the previous years. Throughout the year of 2014, the exchange rate depreciated at the primary market, registering a rate of 102.86 Kz/USD and an annual average of 98.51 Kz/USD due to the decrease in oil price in the international markets. The negative developments in external accounts in 2014 and the first eight months of 2015, due to the decrease in oil price in the international market, has led to the depreciation of the national currency. Throughout the year of 2014, the exchange rate depreciated at the primary market, registering a rate of 102.86 Kz/USD in December 2014 and an annual average of 98.51 Kz/USD. The year 2015 has been strongly marked by the increased demand for foreign exchange, requiring the implementation of exchange rate measures by BNA to eliminate speculative demand. For September of 2015 it was registered an exchange rate of 135,304 Kz/USD. At the end of the year National Bank of Angola perspective an average exchange rate at 125.98 Kz/USD. Figure 10: Exchange rate (Kz/US$) (End of the period) Source: BNA 13
Although the high depreciation of the national currency, the National Bank Of Angola has taken a conservative approach to international reserves, in line with developments on the oil price in the international markets, opting to make a rigorous and prudent management, in order to remain at stable levels, being able to absorb the existing imbalances in balance of payments and not compromise future sustainability. International Reserves In 2015 the gross international reserves declines to USD 24.772 Million, while the liquid international reserves decline to USD 24.510 Million, however its lowest value was reached in July, USD 24.170 Million Figure 11: Net International Reserves & Months of Imports Source: BNA Although the imbalance in balance of payments, resulting in inflows of foreign currency lower than outflows and causes the reduction of international reserves, months of imports stand at 6.70 in August 2015 showing a positive change from to 6.50 observed at the beginning of the year and perspective that at the end of the year are located in 6.61, which indicates that international reserves are stable and remain at adequate levels given the country's external needs and functioning as capital buffers to ensure national needs and the resilience of the economy to external shocks. The latest estimates for 2015 suggest international reserves equivalent to 6.61 months, Gross Reserves / GDP of 22.4% and Debt Service / Gross Reserves of 26.8%. Although estimates of international reserves in general reflect deterioration compared to 2014, they are above the limit of six months recommended by the SADC, and the golden rule of three months recommended by the IMF, indicating that the external sustainability it s assured. 14
In the end of 2016, the National Bank of Angola perspective an exchange rate of 147.32 Kz/USD and an average exchange rate of 143.82 Kz/USD. For the Net International Reserves and month of imports expect for next year a reduction to Usd 17.924,40 Million and 5,40 months, respectively. III. Forecast Summary Policy issues and Uncertainties The year 2015 will be a challenging year for the Angolan economy. The reduction in the price of oil, accounting for about 95% of Angolan exports and the high dependence on foreign imports, despite the gradual increase in domestic production, puts a special attention to the Angolan economy, due to a slowdown in the economic growth and the current account deficit. Therefore, for the oil prices, in 2015 and 2016 it is predicted USD 53 and USD 45 respectively. In 2015 is expected a slightly lower growth of the Angolan economy (4,03%) compared to 2014 (4,75%), scenario that could have been worse, if not for the real growth of the oil sector (7,79%). For 2016, it is expected an even lower growth of 3,35% It is also anticipated a not so good scenario for the fiscal and external position in 2015, where can be foreseen a deficit for both the Budget Kz 672,42 billion (5,28% of GDP), and the Balance of payments mainly due to the current account deficit USD 13.393,9 million (-259,82% compared to 2013). For 2016 the Budget will register a deficit of Kz 825, 80 billion and the current account a deficit of USD -13.138,53 million. For 2015 and 2016 it is anticipated, again, a rise of the debt that will result in a 43,99% and 47,50% of GDP, respectively, coming from a position of 30,99% of GDP in 2014, in a context were estimates for 2015 suggest international reserves equivalent to 6.6 months and 5,4 for 2016. Although estimates of international reserves in general reflect deterioration compared to 2014, in 2015 they are above the limit of six months recommended by the SADC, and the golden rule of three months recommended by the IMF, indicating that the external sustainability it s assured. And finally, at the end of the current year National Bank of Angola perspective an average exchange rate of 125.98 Kz/USD and 143,82 Kz/USD for 2016. A two digit inflation rate is predicted for 2015, 13,80% almost the same as the inflation registered in 2009 (13,8%). Nevertheless, for 2016 the prevision indicates a lower inflation of 11% even though, this entire scenario is putting some pressure to the authorities. In this sense the Executive is studying the implementation of a set of measures to increase the diversification of the Angolan economy, with a view to increase even more the domestic production and reduce the dependence on imports of goods and services as well as the oil sector weight in the national economy. The reduction in the oil sector activity, leading provider of dollars of Angola's economy, will be a constraint on business activity. 15
In this context, the Government of Angola will continue to implement a macroeconomic management based on coordinated implementation of fiscal and monetary policies, in order to ensure the maintenance of price stability. IV. Summary Table for forecast Table1: Level Assumptions 16
Table2: Growth Assumptions 17
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