The Executive Board of the International Monetary Fund (IMF) has approved a three-year Extended Arrangement under the Extended Fund Facility, EAEFF, in an amount of $3.7 billion or 361 percent of Angola’s quota, to support Angola’s economic reform program.
The program will help Angola restore external and fiscal sustainability and lay the foundations for sustainable, private-sector-led economic diversification. Critical pillars of the program include fiscal consolidation to bring debt to safer levels; increased exchange rate flexibility to regain competitiveness; and supportive monetary policy to reduce inflation.
Other pillars of the program include strengthening the banking system; enabling a better business environment; updating the AML/CFT legal framework; and improving governance.
The Executive Board’s Decision allows for an amount of SDR 715 million, about US$990.7 million, to be immediately made available to Angola. The remaining amount will be phased in over the duration of the program, subject to semi-annual reviews.
Following the Executive Board’s discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The Angolan authorities are implementing a Macroeconomic Stabilization Program which is focused on strengthening fiscal sustainability, reducing inflation, promoting a more flexible exchange rate regime and improving financial sector stability. They are also implementing a National Development Plan for 2018–22 to address structural bottlenecks and promote human development, public sector reform, diversification and inclusive growth. The authorities also intend to improve governance and fight corruption. These efforts are supported by an IMF program under the Extended Fund Facility.
“Fiscal consolidation is a core element of the program. The authorities’ plan is to increase non-oil revenue, including by introducing a value added tax, eliminating subsidies and clearing domestic arrears. Protecting the poor and most vulnerable is an important element of the program. In this regard, the sequencing of reforms and putting in place off-setting measures will be important. Strengthening public financial management will improve the allocation of scarce public resources and strengthen policy formulation and implementation. Upfront fiscal consolidation in 2018 and gradual consolidation in the medium term is necessary to place public debt on a downward trajectory and create space for much needed infrastructure and social spending. Sound policy implementation can mitigate risks from international oil prices. Strengthened debt management and transparency is critical to address debt-related risks.
“The exchange rate depreciation and the commitment to a market-determined exchange rate are critical steps towards eliminating foreign exchange shortages and restoring external competitiveness. The liberalized exchange rate regime will be supported by tight monetary policy to anchor inflation expectations and allow accumulation of international reserves.
“Safeguarding financial sector stability is critical for the success of the program. The authorities plan to improve governance and credit-risk management at public banks. An asset quality review for largest banks is expected to inform possible recapitalization and restructuring needs. A reexamination of policies that create foreign exchange mismatches in bank balance sheets would help promote financial sector stability. Pressures on correspondent banking relationships will be mitigated by submitting a new AML/CFT law to Parliament.
“Structural reforms under the program will aim to diversify the economy to reduce fiscal risks and foster private sector development. They will include restructuring state-owned enterprises and improving the business climate, strengthening economic governance, and continuing to fight corruption.”
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