The Angolan Economy: A Challenging (Election) Year Ahead

The Angolan Economy: A Challenging (Election) Year Ahead

Economic growth is expected to accelerate in 2022

The Angolan government’s 2022 budget proposal recently presented to Parliament (and likely to be approved by mid-December) assumes that economic activity in the country will pick up significantly after a soft recovery of 0.2% expected this year. Specifically, real GDP is forecasted to advance 2.4% thanks to positive contributions from both the oil (1.6%) and non-oil (3.1%) sectors. We believe this forecast may be optimistic considering the downside risks still presented by the Covid-19 pandemic while remaining dependent on the speed of the vaccination process in the country. On this front, the government aims to have 95% of the population inoculated by the end of 2022 (vs. c20% currently). The budget proposal also assumes that oil output will improve slightly to 1.148 million bpd and crude prices will average US$ 59.0 (vs. US$ 67.5 this year), which the government admits is a conservative estimate.

The government projects a very modest budget surplus

Next year’s budget proposal amounts to AKZ 18,745 billion, standing 26.8% above the 2021 budget and 11.2% ahead of the expected figure for this year. The proposal assumes that the government will reach a very modest surplus of AKZ 1.5 billion in 2022 (equivalent to 0.0% of GDP) following a surplus of 3.0% expected this year and a deficit of -2.3% projected in the 2021 budget. The government also forecasts a primary surplus (excl. debt payments) of 5.5%, below the surplus of 7.7% this year.

Higher revenues from non-oil sector and spending related to the pandemic

The higher revenue projections (11.1%) reflect an improvement in both tax and non-tax related receipts. In particular, tax revenues are expected to increase 7.6% thanks to a larger contribution from the non-oil sector (17.3%), as taxes from the oil sector see a relatively modest 1.2% increase. On the other hand, expenditures are expected to rise 29.4% due to the sharp increases in the amount of spending on goods and services (58.1%), interest payments (29.8%) and transfers (71.7%). These are mostly related to the continued impact of the pandemic on the Angolan economy, including the need to maintain the support to households, companies and the informal sector.     

Nearly half of public expenditures to be allocated to debt service payments

The government expects to finance its 2022 budget by once again relying relatively more on public receipts, mainly taxes (57.2% of total revenues), as opposed to debt financing. The projected amount of debt financing is still anticipated to rise though (11.3%) and account for 36.7% of total receipts, as higher financing in the domestic market outweighs the impact of lower overseas financing in the period. In terms of expenditures, it is worth highlighting that nearly half of public spending is likely to be allocated to debt service payments (debt amortization plus interest).

Target to lower public debt to 60% of GDP over the long-term, but…

Preliminary figures indicate that public debt declined to 84.8% of GDP in September 2021, which compares with a historically high 128.7% in 2020. This more favorable evolution is due to the impact of the primary surpluses recorded in recent years, as well as the stabilization of the kwanza exchange rate in 2021. That said, it remains imperative for the Angolan authorities to continue to adopt measures to lower public debt levels with the aim of reaching the target of 60% of GDP over the long-term. In order to reach this objective, the non-oil sector primary fiscal deficit will have to remain consistently at a level equal to or below 5% of GDP until 2025, which, in the upcoming election year, the 2022 budget proposal already assumes will not happen.