The Angolan Economy: Expansionary budget aimed at boosting growth

Economic growth expected to continue to accelerate in 2025

The 2025 budget proposal assumes that real GDP growth will continue to accelerate and reach 4.1% next year. This forecast reflects a recovery in the oil sector (1.6%) and faster growth in the non-oil sector (5.2%). Inflation is expected to trend downwards due to a persistently tight monetary policy followed by the BNA and more stable AKZ exchange rate. The budget proposal assumes oil prices will average US$ 70 per barrel. This is higher than the US$ 65 in the 2024 budget, but below the US$ 83 now projected for 2024. The government also sees average daily crude production rising by 1.0% to 1.098 million barrels in 2025 due to the start of production at certain oil fields.   

Government expects to reach a budget deficit equivalent to -1.7% of GDP

The budget proposal amounts to AKZ 34,634 billion, standing 40.1% above the 2024 budget and 12.4% ahead of the expected figure for the year. The budget assumes that the government will reach a negative fiscal balance of AKZ 1,495 billion (equivalent to -1.7% of GDP) following a deficit of -1.5% expected in 2024. The government also forecasts a primary surplus (excluding debt payments) equivalent to 3.2% of GDP, below the surplus of 4.8% expected in 2024.

Public investment levels anticipated to see a significant increase

The government forecasts that total revenues and expenditure will each increase by more than 19% relatively to 2024 estimates, amounting to 21.9% and 23.6% of GDP, respectively. The budget proposal assumes that (1) tax revenues from the oil sector will continue to improve and represent over 60% of total tax receipts (thanks to the higher oil production expected for the year), (2) non-oil tax receipts will increase by double-digits and (3) other (unspecified) revenues will see another significant surge (nearly sevenfold). Meanwhile, the higher expenditure mainly results from the 71.5% increase in public investment, as the government plans to continue to raise spending on key projects that will boost economic growth. On the other hand, the government expects to reduce its spending on transfers, namely subsidies (-71.9%), as it continues to implement the fuel subsidies reform. All in all, oil receipts are still anticipated to represent more than half of total revenues (54.7%), while capital expenditure account for 28.8% of total expenditure (significantly higher than in recent years). 

Sensitivity analysis to different oil price scenarios

Angola remains very dependent on the oil sector, with the evolution of crude prices (and production) having a material impact not only on economic growth, but also on fiscal receipts. Our sensitivity analysis to different oil price scenarios suggests that if the average oil price reaches US$ 80 in 2025 (instead of US$ 70 assumed in the budget proposal) then total revenues would be 7.8% higher than the current forecast and the government would reach a budget surplus equivalent to 0.1% of GDP (instead of the -1.7% now predicted). On the other hand, if the average oil price reaches US$ 55 then revenues would be 11.7% lower and the budget deficit would stand at -4.2% of GDP.  

Higher public investment will hopefully help improve growth prospects

Contrary to the 2024 budget, the 2025 budget proposal assumes a significant increase in public investment levels, as these are expected to represent 6.7% of GDP (vs. 3.5% in 2024). This means higher total expenditure that will most likely lead to another budget deficit in the period. However, with public debt levels seemingly under control and on a downward trajectory, higher public investment levels will hopefully help improve Angola’s economic growth prospects. This is positive news and something that the country really needs.