- The International Monetary Fund (IMF) has approved a 27-month Stand-By Arrangement (SBA) with Angola in the amount of about US$1.4 billion to help the country cope with the effects of the global economic crisis.
The IMF-supported economic programme approved aims to restore macroeconomic balances and rebuild international reserves.
“While the immediate goal is to mitigate the repercussions of the adverse terms of trade shocks linked to the global crisis, the programme also includes a reform agenda aimed at medium-term structural issues to foster the non-oil sector growth,” the IMF explained in a statement.
The statement further said the key pillars of the programme are:a determined fiscal effort that aims to reduce the non-oil primary fiscal deficit significantly in 2010 and that still provides adequate resources for social spending and vital infrastructure projects; an orderly exchange rate adjustment backed by tight monetary policy to normalize conditions in the foreign exchange market; and measures to safeguard the financial sector.
“Preserving an adequate level of social spending and infrastructure investment was a key concern of the authorities in designing their programme objectives. The SBA provides space for 30% of total central government expenditures on social issues over the duration of the programme. In terms of capital spending, the authorities’ fiscal program also provides adequate resources for vital infrastructure projects in 2010,” the IMF said.
Angola has suffered a significant terms of trade shock because of the sharp drop in oil prices. The global crisis hit the country during a period of rapid expansion and strong pro-cyclical policies, fueled by oil revenues. The subsequent large drop in oil revenues caused a sharp slowdown in the economy, weakening of fiscal and external positions, depreciation of the exchange rate, and a rise in inflation.
Following the approval of the arrangement with Angola, Takatoshi Kato, Deputy Managing Director and Acting Chair, said: “The Angolan authorities are to be commended for their strong commitment to a comprehensive reform programme that addresses the macroeconomic imbalances which emerged in the face of the global economic crisis”.
He noted that the Angolan authorities are committed to take further steps to improve fiscal management over the medium-term, increase non-oil revenues by reforming the tax system, and de-link the fiscal stance from short-term movements in oil revenues, adding that the country’s plan to establish a Sovereign Wealth Fund was welcome.
“Angola’s financial soundness indicators appear to be at comfortable levels. Nevertheless, continued vigilance is needed, and measures will be taken to strengthen further the regulatory and supervisory framework,” Mr Kato said.
Prior to the onset of the global economic crisis, Angola had recorded an extended period of rapid expansion, fueled by strong growth of oil revenues. However, inflation had persisted at low double-digit levels, and fiscal policy had been strongly pro-cyclical, with the non-oil fiscal deficit increasing from 50 percent of non-oil GDP in 2006 to about 70 percent by 2008.
According to the IMF, by the time the crisis hit, expansionary fiscal and monetary policies, and more recently an overvalued exchange rate, had left Angola vulnerable. With oil revenues plunging, investor confidence declining, and heavy intervention by the National Bank of Angola to sustain a tightly managed exchange rate, official reserves fell by one-third in the first half of 2009, the IMF said.
Angola, which joined the IMF in September 1989, has a Fund quota of SDR 286.3 million.
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