Angola Budget 2015 - Lower oil prices hit 2015 accounts?

The Angolan Economy

Lower oil prices hit 2015 accounts?

Local authorities foresee strong growth in 2015

The Angolan authorities expect real GDP growth in the country to surge to 9.7% in 2015. This figure is included in the Budget 2015 proposal recently delivered to the National Assembly. It is well ahead of the forecasts recently released by the IMF (5.9%) and the EIU (4.8%) and compares with the 4.4% estimated for this year. This growth assumption is based on a strong recovery in the oil sector (10.7% vs. -3.5% in 2014) as well as continued robust non-oil sector growth (9.2% from an already strong 8.2% expansion in 2014). 

Oil production recovers, but lower oil prices hurt fiscal revenues

The government forecasts an improvement in oil production from 1.66 million bpd this year to 1.83 million in 2015 (the target of 2 million bpd is postponed to 2016). However, it also expects average oil prices to fall 22% to US$ 81 per barrel next year, which should have a material impact on fiscal revenues. Taxes from the oil sector are expected to fall 16.3% YoY and represent 61% of total revenues in 2015. This compares with an average of 75% of total revenues in the previous three years.

Budget deficit expected to reach 7.6% of GDP, a post-war high

The 2015 budget proposal foresees a significant deterioration in the fiscal deficit to AOA 1,031 billion (or 7.6% of GDP from an estimated 0.2% in 2014). This is the highest level since the end of the civil war in 2002. Total revenues are expected to fall 3.9% YoY while expenditures should see a 19.1% increase. Current expenditures will remain the lion's share of the government's total spending (nearly 74% of the total). They are forecasted to rise 15.8% YoY, going against the IMF's suggestion to moderate the growth of the wage bill as well as spending on goods and services. Capital expenditures, namely public investment rebounds after a drop in 2014. Also worth noting on the positive side (and in contrast to the 2014 budget) is the increase in spending in the social sector, namely on education, health and social protection.       

Current backdrop requires extra care in managing public accounts

While public debt levels remain sustainable (even after a likely increase to 35.5% of GDP vs. 29.2% in 2014) and the growth outlook relatively favorable, the months ahead will require particular attention from the Angolan authorities regarding the management of the country's public accounts. This has become increasingly important bearing in mind the likely impact that lower oil prices will have on fiscal revenues going forward as well as the continued high demand for increased public spending on infrastructure and poverty reduction projects. As was the case in the 2008-09 crisis, which saw Angola recording budget deficits in both years and seeking IMF assistance in 2009, we hope that the significant deterioration in the budget deficit projected for 2015 is a one-off and that the country quickly returns to budget surpluses in the medium-term.