Angolan 2008 Budget
Analysis
CEIC
Bergen, 5th June 2008
Prepared by: Alves da Rocha
Presented by: Salim Valimamade
Summary
I.
II.
III.
IV.
V.
VI.
Importance of Budgetary Policy
Budget Process in Angola
Macroeconomic Indicators Analysis
Budget Management Analysis
2008 Budget Assumptions
Conclusions and Challenges
I. Importance of Budgetary Policy
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Budgetary Policy is one of the most important policies in regulating the
functioning of the market economy;
It is also used as one of the measures to correct and alleviate the market
failures;
Monetary policy is also important, but during times with high degree of
economic integration, it has lost its importance and space of intervention;
For example in the euro-zone, countries with common monetary policy,
have lost its instrument to control issues like inflation, external
competitiveness and internal productivity;
Management of these issues, is becoming more and more related to
national fiscal policies;
In countries of SADC area, the tendency is similar. There are underway to
lose their national influence on monetary policies and concomintantly under
the way of more predominance of fiscal policy as instruments for attaining
the economic objectives like GDP growth, employment and better income
distribution.
II.Budgetary Process
The budgetary process in Angola Usually has six typical phases:
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Construction of a general macroeconomic framework for the budget period, including macroeconomic
projections and general statements of government policy as well as a description of the international economic
situation;
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Allocation of total resources across Ministries, provincial governments and autonomous institutions by
predefined criteria. This is the point at which group preferences and individual preferences of a political economic
or ideological nature may come into effect, in a Buchanan sense;
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Circulation of instructions to all the organs that will be implementing the State Budget;
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Presentation of proposals by the Ministries, Provincial Governments and other implementing entities of
the budgetary outlays necessary to realize the social, economic, defense and security objectives, for which they
have responsibility;
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Negotiations over adjustment of the budgetary allocations between the Ministry of Finance and the budgetary
partners. In this phase, the political weight of the ministries and other responsible partners may be important for
the modification of the shares initially allocated by the Ministry of Finance. If these adjustments are justified on the
basis of increasing the degree of satisfaction of the social necessities, very well. If not, too bad;
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Elaboration of the budget proposal to be submitted to the Cabinet (Conselho de Ministros) and after that to
the Parliament. The budget proposal must be delivered to the Cabinet before 30th September and before 31st
October to the Parliament (Assembleia Nacional) so that by 15th to 20th December it will be approved and
before 31st December published in the Government Gazette (Diário da República).
II. Budgetary Process
• As for government revenue, the National Directorate of Taxation
(Direcção Nacional dos Impostos) will make projections for tax
revenue in line with the assumptions adopted for the
macroeconomic framework;
• The amounts of revenue projected are then communicated to the
National Budget Office (Direcção Nacional do Orçamento);
• This initiates the process of elaboration of the Expenditure Budget
(Orçamento das Despesas) in line with the steps mentioned above.
II.Budgetary Process
Credibility
Considerations to be taken for the credibility of the budgetary
process:
• Assurance of consistency between the programmed aggregate
public expenditure and the macroeconomic objectives;
• Assurance of proper consideration of strategic priorities for the
programmed public expenditures;
Credibility also depends on:
• Technical capacity of the different parts of the civil service to make
the projections of public revenues and expenditures;
• Quality of macroeconomic projections.
III.Macroeconomic Indicators Analysis
• The policy of macroeconomic adjustment followed by Government
since 2000 has intrinsic characteristics that may be compared to the
IMF orthodox model.
• The basis for the model is the sterilization ‘ex ante’ of excess
liquidity in the economy and here we see a new, may be original,
face of the more classical and conventional models.
III.Macroeconomic Indicators Analysis
• Since 2005 Angola has been Africa’s fastest-growing
economy, with a GDP averaging near to 18% a year;
• This strong economic performance is almost entirely due
to oil production and booming prices, supplemented by
construction and financial services sectors;
• In spite of significant increase in non-oil sector, oil and
gas account for more than half GDP while diamonds
bring in another 2%;
• The combination of oil wealth and relatively small
population means than income per capita in USD
virtually doubled over the past three years.
III. Macroeconomic Indicators Analyis
Macroeconomic Indicators
2002
2003
2004
2005
2006
2007
Population (millions)
15,0
15,5
15,9
16,4
16,9
17,4
11,240
13,513
18,515
30,271
41,836
60,638
GDP Per Capita (USD)
746
873
1 162
1 842
2 476
3 485
Real Growth (%)
13,2
5,2
11,3
20,6
18,6
20,8
Oil Sector (%)
20,6
-2,2
13,1
26
13,1
22,3
7,9
10,3
9
14,1
27,5
25,1
Gross Domestic Product
Nominal GDP (USD Million)
Non-Oil Sector (%)
GDP by Sector -2007
Non Tradable Services
7%
Fishing & Agricultura
8%
Tradable Services
17 %
Construction
5%
Manufactoring
5%
Diamonds
2%
Oil & Gas
56 %
Oil Sector prices and production
III. Macroeconomic Indicators Analysis
• Inflation rate continued to develop in a positive direction,
essentially due to a better control in money supply and
the ex-ante sterilization policy of the fiscal revenues of oil
sector and also;
• The exchange rate had followed a similar path to that of
inflation rate, giving a strong signal of anti-inflationary
policy and acting as a nominal anchor of the price
system (large imported component of consumption);
• Good performance due to a increase in the level of
external reserves coming from oil fiscal revenues,
however must issue a warning in inflation and exchange
rates future development, due to imported inflation and
the increase of international energy and food prices;
III. Macroeconomic Indicators Analysis
Macroeconomic Indicators
2002
Inflation Rate (%)
105,6
76,7
31
18,5
12,2
11,8
324
790
2 023
4 140
8 587
10 511
43,70
74,61
85,99
80,79
80,26
76,48
Net External Reserves (Million
USD)
Exchange Rate (USD/AkZ)
2003
2004
2005
2006
2007
Macroeconomic Indicators
IV. Budget Management Analysis
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The performance of budget management is usually – but not exclusively – evaluated
by the balance between revenue and expenditure;
The situations in 2006 (surplus of 9,9% of GDP) and 2007 (surplus of 2% of GDP)
were very positive and manifest the accumulation of fiscal surpluses;
The fiscal revenue from petroleum activities continued to dominate the structure of
the domestic fiscal system having in 2007 represented 37.1% of the GDP (33.8% in
2006) and 81% of the total public revenue (80.1% in 2006);
These percentages represent an excessive and dangerous dependency on revenues
from a product which is prone to enormous oscillations in the international market;
The significant increment of non-petroleum sector noted earlier has not yet created
an alternative fiscal base for the state revenue. However the fiscal importance of the
of the non-petroleum sectors has increased;
The share of these were 6% and 7% respectively in 2006 and 2007 (an increment of
about 18.3%) and about 19% (in any of those years) in total public revenue.
IV. Budget Management Analysis
• Current state expenditure represented in 2007, 22.6% of GDP
(21.4% in 2006) and 65.7% of total public expenditure (66.2% in
2006);
• In addition, expenditure from acquisition of non-financial assets
increased by 8.3% in 2007, representing 11.8% of GDP and 34.3%
of total public expenditure;
• These developments followed the strong will within Government for
rehabilitation and modernization of economic and social
infrastructure, which will be essential for sustaining the economic
growth and improving the social conditions of the population;
Budget Management: Revenues and Expenses
(% of GDP)
50
40
30
Revenues
20
Balance
Expenses
10
0
2003
-10
2004
2005
2006
2007
Government Expenses
% of GDP
40
35
30
Social
25
Economic
Defense
20
Administ
Interests
15
10
5
0
2005
2006
2007
Government Expenses
% of GDP
•
In 2007 there was a significant increase in expenditure in the social sectors,
the budget component increasing by 23% from 2006. The most significant
increases occurred in the sub sectors housing and community services
(82%), security and social support (7.5%) and in education (39.6%);
•
As for the economic sector expenditure – towards the creation of better
conditions for the functioning of the economy and stepping up private sector
activity – budget expenditure was increased by 42.9% from 2006 to 2007.
Increases were most significant in agriculture, fisheries etc (20%) and not
least in fuels and energy (73%);
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One should also note the decline in financial charges which was brought
about by better management of the public debt and a reduction in the stock
of public debt.
External Debt
$12.000,00
$10.000,00
$8.000,00
$6.000,00
$4.000,00
$2.000,00
$0,00
2002
2003
Banks
Companies
2004
Bilateral
2005
Multilateral
2006
External Debt / GDP
100
90
80
70
73,09
60
54,55
50
40
39,83
30
20,37
20
16,19
10
2003
2004
2005
2006
2007
2008 Budget Assumptions
The base assumptions for the financial programming of the Government for
2008 were as follows:
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Price per barrel of crude oil – USD 55
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Production of petroleum – 710.6 million barrels
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Rate of inflation – 10%
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Exchange rate – the orientation is towards policies which will
reinforce the confidence in the national currency
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Rate of increase in GDP – 16.2%
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Rate of increase in petroleum sector GDP – 13.3%
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Rate of increase in non-petroleum sector GDP – 19.5%
2008 Budget Assumptions
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Government thus maintains the objective of changing the productive
structure of the Angolan economy in that from 2004 the non-petroleum
sector have increased more than have the petroleum sector and the overall
economy;
It is probable that once more the predicted rate of inflation will not be
attained, even with the determination of sticking to the exchange policy of a
gradual appreciation of the national currency;
This will not only be related to the effect of the higher increase in the price
of oil than in the domestic price level, imported inflation, will have an effect,
particularly from the European area which provides some 65% of the total
imports;
Also the damages of the world food crisis which already affects many of the
African countries will also have an effect.
2008 Budget Assumptions
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Revenues are estimated at USD 24 562 millions and expenditure at USD 28
784 millions. The implicit deficit of 8.6% of GDP is largely theoretical, based
on the high degree of conservatism in the projected oil price;
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The structure of the public revenue set for fiscal 2008 continues to be
slanted, in disequilibrium and dangerous, as it builds on the continued
increase in the price of a barrel of oil in the medium term;
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It appears that in 2008 the fiscal revenues from oil will represent 77.2% of
the total, the rest to be covered by other sources;
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Customs revenue contributes 2.2% despite of an increase of imports in
nominal terms of about 15%.
2008 Budget Assumptions
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The structure of the public revenue set for fiscal 2008 continues to be
slanted, in disequilibrium and dangerous, as it builds on the continued
increase in the price of a barrel of oil in the medium term;
The current expenditure increased considerably – about 9.5% relative to
2007, its share of GDP moving from 28.5% in 2007 to 31.2% in 2008. The
two most important components were remunerations of the civil service,
military and paramilitary personnel and the attendant additional expenditure
for their activities;
The public investment stood for a share of 42.9% of the total public
expenditure an increase of 127.2% relative to 2007;
The Government continues to allocate considerable amounts to
infrastructure public investment, representing 63%, while the social sector
represents only around 25%.
2008 Budget Assumptions
Conclusions and Challenges
Conclusions
• Despite of good performance in macroeconomics variables and
public accounts, Angolan Economy is extremely dependent on Oil &
Gas Sector;
• Angolan Social Development remains poor: low human
development index (UN Development Programme), life expectancy
is only 41 years old and infant mortality rate is 50%;
Challenges
• Diversifying the economy dependent on Oil & Gas Sector;
• Visionary use of Public Money (eg. Investment in Human Capital)
Opportunities
• Economic Diversification e
Competitiveness
• Reduction of Unemployment
• Better Income Distribution
• Improvement of Social Indicators
• Fiscal Descentralization
• Improvement in Public Expenses Quality –
Development Plan 2009-2013