Faith in Reforms

Angolan financial system regulations are about to get a shakeup. Emerging from a period of lost credibility, Angola today aims to regain it with interest. Fundamental to that, and to plans for economic diversification beyond hydrocarbon dependency, is deep structural reform including financial reform, not least to expand financial participation, and with it the tax base. Of note was parliament’s historic vote in February 2021 to expanded public contribution to the economy by approving the introduction of VAT.

Not a One-trick Pony
Angola’s dilemma had long been oil dependence, which while prices were high, proved a deceptively permanent source of growth. Predictably then, the decline in oil prices in 2014 rapidly led to a long spell of recession that the nation is working overtime to escape from via permanent financial remedies. The nation’s economic rethink has been an obvious remedial measure to differentiate the base while widening economic participation.

2018 proved to be a landmark year, featuring a market economic stabilization program sponsored by the IMF featuring an expanded financing program running to December 2021. Notably, in 2018 and 2019, the economy yielded a positive budget balance for the first time in three years. Part of the initiative featured a G20 suspension of Angola’s medium-term debt ceilings until 2023, yielding budgetary breathing space to pursue other pressing needs.

Banking on Diversification
Its new leaner and more efficient financial structure should prove conducive to Angola’s economic diversification away from hydrocarbons, notably a doubling down on its potentially game-changing mining sector. As of 2016, Angola had ranked as the world’s sixth-largest diamond producer and number three in Africa, on annual production of 9 million carats. And then there is agriculture and tourism, both vital sources of employment and greater financial inclusivity once human capital and infrastructure are in place.

Welcome Acknowledgment
Sustainable growth is the ultimate target of Angola’s financial reforms. Accordingly, in March 2021 the World Bank approved a USD700-million Development Policy Operation (DPO) in support of Angola’s efforts to expand financial and social inclusion and advance the macro-financial and institutional environment to a point appealing to private-sector commitment. The facility addressed the socioeconomic impact of COVID-19. The DPO notably also confirms the institution’s confidence in Angola’s financial reform initiatives.

Six of the Best
In December 2021, the IMF concluded its sixth review of Angola’s economic program propped up by an extended arrangement under the Extended Fund Facility (EFF), whereby it rounded off its Article IV consultation with Africa’s third-largest economy. This triggered the immediate disbursement roughly USD748 million whereby total related disbursements reached around USD4.5 billion.

IMF has been championing Angola’s initiatives to restore fiscal sustainability, while improving governance to accommodate private sector-led economic growth essential to economic diversification. Moreover, the sixth review was accompanied by waivers of nonobservance of performance criterion regarding the net international reserves of Banco Nacional de Angola (BNA), the country’s central bank.

An Institution to Bank on
Late in 2021, amendments to the Constitution granted all-important independence to BNA in institutional, functional, administrative, and financial terms. The Law on the General Regime of Financial Institutions (LRGIF) granted BNA wide authority to regulate the remaining elements of the financial system in a legal provision approved in February 2021 that took effect in May. This independence gave the bank the credibility essential to future performance and wider confidence in Angola in the international arena.

Meanwhile, the circulatory system of the economy, the banking system, has adopted a surer regulatory framework in the new Law on Financial Institutions. This provides an overwatch on each key element of the financial system, be it banking, the capital markets, or the insurance sector. As such, the compliance this ensures is a must-have feature for Angola in the local—and international—arena. One that mitigates systemic risk regardless of the economic climate. IMF has also urged Angola’s financial sector to address persistently high levels of non-performing loans.

Poverty and Informality
The perennial challenge when boosting financial participation is to inculcate a culture of saving that reaches beyond the compulsory levying of taxes. Yet, this poses a considerable challenge for the ordinary citizen without greater finical advances. Compulsory insurance aside, wider adoption of insurance coverage, not to mention sophisticated financial management to include the capital markets, remains wishful thinking contingent upon the emergence of a larger middle class.
In 2022, the nation goes to the polls. And while the government has received the green light from international institutions, the general public is bound to reflect its satisfaction with the latest structural reforms at the ballot box.