The Angolan Economy: Budget sets a better picture for 2023

THE ANGOLAN ECONOMY: BUDGET SETS A BETTER PICTURE FOR 2023

Economic growth is expected to continue to improve

The Angolan government’s 2023 budget proposal assumes that economic activity in the country will continue to accelerate this year (and beyond), with real GDP growth projected to reach 3.3% from an expected 2.7% in 2022. Despite all the risks and uncertainties, namely related to the international backdrop, we believe this growth estimate is reasonable and note that it is in line with the IMF’s forecast of 3.4% for the period. The government also projects that real GDP growth will improve in the years after 2023, reaching an average of 4.1% annually during 2024-28. Meanwhile, the 2023 budget proposal assumes that crude prices will average US$ 75 per barrel (vs. US$ 100 estimated for 2022) and that oil production will increase 2.8% to 1.18 million bpd. Inflation is expected to continue to decelerate largely because of the persistently tight monetary policy followed by the central bank, with annual inflation forecasted to end the year at 11.1% (from 14.4% in 2022).

The government projects another budget surplus in 2023

The budget proposal amounts to AKZ 20,104 billion, standing 7.2% above the 2022 budget and 5.9% ahead of the expected figure for the year. The budget assumes that the government will reach a surplus of AKZ 560 billion (equivalent to 0.9% of GDP) following a surplus of 2.7% expected in 2022. The government also forecasts a primary surplus (excluding debt payments) equivalent to 4.9% of GDP, below the surplus of 6.7% expected in 2022.

Lower oil receipts to be offset by a larger contribution from the non-oil sector

The government projects that revenues will increase by only 0.7% to AKZ 13,462 billion (with oil receipts falling by nearly double digits) and expenditures will rise by 8.4% to AKZ 12,902 billion relatively to the figures anticipated for 2022. It is also worth highlighting the following projections: (1) a 16.1% increase in non-oil related revenues and 7.1% in primary expenditures, (2) oil-related tax receipts will continue to account for the majority of revenues (53.5% of the total), (3) a 12.4% increase in current expenditures due to higher public spending on goods and services, wages and interests and (4) capital expenditures will remain elevated, as the government plans to boost public investment to accelerate economic growth and improve job creation.

Nearly half of public spending to be allocated (again) to debt service payments

The government anticipates that 59.7% of the proceeds needed to finance its 2023 budget will come from taxes (35.8% from the oil sector), while a third will come from debt financing. We note that the amount of debt financing is expected to rise by 31.6%, with financing in overseas markets advancing at double the pace of domestic financing. Regarding expenditures, we highlight that 45% of public spending is to be allocated to debt service amortization (capital plus interest).

Public debt ratios have fallen significantly in 2021-22

Angola’s public debt ratios kept a downward trajectory in 2022 after already seeing a sharp fall in the previous year. The government estimates that public debt should reach 56.1% of GDP by year-end, down from a historical high of 133.8% in 2020 and 82.9% in 2021. This evolution reflects the fiscal consolidation measures recently implemented together with a more stable kwanza exchange rate, as nearly two-thirds of public debt is denominated in foreign currency. That said, it remains imperative for the Angolan authorities to continue their fiscal consolidation path to help ensure that the target of a public debt ratio of 60% of GDP in the long-term is achievable.