The Angolan Economy

The Angolan Economy

An uphill struggle in 2015

Lower economic projections this year

In its newly revised budget for 2015, the Angolan government expects the average oil price for this year to stand at US$ 40 per barrel. This is half of the price foreseen in the initial budget document released last October. The local authorities have also lowered their economic growth forecasts to 6.6% this year from a previous estimate of 9.7%. The non-oil sector suffered the biggest revision to a 5.3% growth rate (from 9.2%). However, the scenario projected by the government remains more upbeat than the one expected by several international institutions, which begin to suggest that growth may decelerate to a rate below 4% this year.  

Fiscal deficit expected to reach 7% of GDP (vs. 3.1% in 2014)

The Angolan government forecasts a fiscal deficit representing 7% of GDP this year. This estimate is lower than the 7.6% initially planned, but it remains well above the (preliminary) deficit recorded in 2014 (3.1%). As expected, this new budget assumes a significant reduction in revenues that the local authorities hope to accommodate with lower expenditures in all sectors. Specifically, revenue estimates were cut by 36% from the previous budget projections (oil related revenues were revised downwards by 59%) while spending was lowered by 33% (public investment was cut by 44%). More funds continue to be allocated to the social sector (32.5% of total expenditures), but spending on defense and security (15.5% of the total) still outweigh the amount invested in education and health (13.5% of the total). Overall, the new budget sees public debt reaching 45.8% of GDP, which compares with the initial estimate of 35.5% and 31.2% in 2014.

Tax reforms and lower fuel subsidies to aid fiscal accounts

The local authorities hope that the implementation of several tax reforms will improve tax collection outside of the oil sector. Non-oil related receipts are expected to jump 27% this year and to surpass the contribution of the revenues coming from the oil sector. Several measures like the recently announced tax on foreign exchange transfers could also help improve the government's coffers. The exact details of this measure, including the tax rates and the length of time that it will be effective, are yet to be publicly disclosed though. The government is also expected to continue its fuel subsidy reform. We note that these represented nearly 3.5% of GDP last year. It hopes to reduce the amount of subsidies to 1% of GDP over the medium-term. 

A sensitivity analysis to different oil price scenarios

Our sensitivity analysis suggests that total revenues would increase by 8.4% from the current revised budget estimates if the average oil price reaches US$ 45 this year (vs. the US$ 40 expected). This means that the fiscal deficit would improve to 5% of GDP in 2015. According to our estimates, a balanced budget would require oil prices to reach an average level of slightly below US$ 70 this year. This is assuming that all else would remain equal, namely that the Angolan government would keep its current spending plans unaltered.