IMF calls for reduced deficit and greater transparency

Angola's mostly petroleum driven economy grew by 15 percent in 2002, yet poverty remains widespread and the government's external borrowing has reached unhealthy levels, says an International Monetary Fund (IMF) report on the country. The IMF noted that growth in the non-oil economy had "lagged behind, and Angola continues to be dependent on imports and food aid for about half of its cereals requirements". "Poverty remains widespread, with more than 65 percent of the urban population living below the poverty line. Poverty is reportedly far deeper in rural areas," the report noted. Inflation had shown no sign of abating and ran at above 100 percent throughout the year. Apart from signing a free trade agreement with the Southern African Development Community (SADC) in March 2003, the government's attention was "focussed on immediate post-conflict issues" following the end of the 27-year-long civil war. As a result, "structural policy reforms in 2002 were limited", the IMF said. The organisation's executive directors pointed to the need for the government to reduce "the fiscal deficit to sustainable levels". The review noted that the "general government fiscal deficit (on accrual basis) more than doubled between 2001 and 2002, reaching the equivalent of nine percent of GDP, while the non-oil fiscal deficit remained very high at an average of 38 percent of GDP in 2001-02". "The financing of the 2002 fiscal deficit depleted almost all balances held in Angola's oil-bonus offshore accounts, entailed costly borrowing from international commercial banks, and led to an expansion of central bank net credit to the government equivalent to 3.6 percent of GDP," the IMF added. The executive directors of the IMF said the government needed to commit resources to "poverty reduction and infrastructure needs", as well as to "phasing out the monetary financing of the budget and reducing the operational deficit of the central bank, which have led to high inflation, a depletion of international reserves, and real exchange rate appreciation". They stressed that "greater transparency in the management of public institutions and the oil sector lie at the heart of improving governance, and that a strong political commitment to economic and structural reform would help to consolidate the peace process". This would be crucial to re-establishing a constructive dialogue with donors and creditors, especially in light of the importance of coordinated support for Angola's post-war recovery. While the IMF directors acknowledged that the costs of resettling refugees, internally displaced persons and demobilised soldiers would be high, they nonetheless urged Angolan authorities to narrow the fiscal deficit in 2003 by increasing revenue and cutting spending. They also emphasised the need to "enhance transparency in the oil industry, the economy's growth engine" and commended the government's decision to disclose "relevant oil-related financial information, audit the operations of Sonangol [the state oil company]", and encouraged them to publish in full a private-sector study on the oil industry. Strengthened governance and transparency as well as fiscal discipline would pave the way for an eventual IMF assistance programme in Angola.