The International Monetary Fund (IMF) fears that the approach of presidential elections in Angola in 2027 will jeopardise ongoing reforms, advocating the continued removal of fuel subsidies and an automatic price mechanism, independent of political cycles.
In an assessment report released on Thursday, the Fund says that the Angolan economy recovered in 2024 to 3.8% (compared to 1% in 2023), but notes that dependence on oil continues to weigh on medium-term growth, given the volatility of prices and production of this raw material which accounts for 95% of exports and 60% of tax revenues in the African country.
The institution is concerned about the effects of political uncertainty on the implementation of economic reforms, in the run-up to the presidential elections scheduled for 2027, and the more agitated political environment, after the MPLA, which has ruled the country since independence in 1975, lost several seats in parliament to UNITA (the main opposition party) in the last elections.
The political struggle ‘could postpone the implementation of key reforms, namely the end of fuel subsidies and the collection of domestic revenue, while accelerating capital expenditure’, according to a report consulted by Lusa.
The IMF emphasises that the budget situation has become more fragile despite the decrease in public debt to 24% of GDP in 2024 and the 20% increase in oil revenues. This is due to the weak performance of non-oil revenues, slippages in capital expenditures, and a slower reform of fuel subsidies, which have led to an overall budget deficit of 1% of GDP (compared to a surplus of 1.3% of GDP in 2023).
On the other hand, non-oil foreign direct investment doubled in the first three quarters of 2024 supported in part by the development of the Lobito Corridor and increased demand for credit, with an annual increase of 28.1% (data from November 2024).
The IMF expects inflation to fall below 20% in 2025, gradually aligning with the central bank’s single-digit targets in the medium term, but points to several risks.
‘The 2025 budget signals a shift to a slower fiscal consolidation path,’ warns the Fund, which attributes the fiscal slippages in 2024 to “higher capital expenditure, lower-than-expected gains from the fuel subsidy reform and an underperformance of non-oil revenues,” pointing to an increase in the deficit to 1.3% of GDP in 2025.
The IMF recommends a return to adjustment to rebuild budgetary buffers, pointing to the downward pressures on oil prices. It argues that non-oil revenues, current expenditures, and lower priority capital expenditures should bear the brunt of the adjustment, in favour of development expenditures in the social field, namely investments in health and education.
Measures to increase non-oil revenues include lowering the VAT threshold, adjusting personal income tax brackets, reforming corporate income tax, developing a property registry, and implementing a property tax.
The IMF insists on the removal of fuel subsidies, pointing out that the savings achieved by increasing diesel prices in 2024 have fallen short of targets and proposes an automatic price-setting mechanism to make the adjustment process transparent and insulate prices from political pressures, and praised the authorities’ efforts to combat fuel smuggling.
It said that the privatisation programme for large state-owned companies should be accelerated and extended to mitigate budgetary risks and contribute to revenue collection.
The IMF also stressed that access to credit is a critical factor in the growth of the non-oil economy, pointing to constraints such as the lack of bankable projects, the complexity of registering guarantees, and difficulties in execution procedures.
In the face of growing climatic shocks such as floods and droughts, the Fund speaks of the need for resilient infrastructure, with improvements in irrigation and adapted agricultural practices, considering private and concessional financing critical to bridging the infrastructure deficit and diversifying the economy.
Source: Lusa
