IMF Sees Angola Growth Slowing in 2017 as Oil Output Falls

Economic growth in Angola, Africa’s second-largest petroleum producer, will slow in 2017 as oil output declines, the International Monetary Fund said.

The southwest African country’s $122 billion economy is forecast to expand by 5.3 percent this year, and by 5.5 percent and 5.9 percent in the following two years before the rate slows to 3.3 percent in 2017, forecasts by the IMF shows. Crude oil production will decline to 1.77 million barrels a day from 1.9 million in 2016, according to the Washington-based lender.

“This reflects the expectation that oil production from currently known reserves will peak and then start to fall,” Nicholas Staines, the IMF representative in Angola, said in a March 20 e-mailed reply to questions. “The timing of this turnaround could well be pushed back as new reserves are discovered.”

Angola produced 1.69 million barrels of oil a day last month, second to Nigeria on the continent, mostly from offshore fields operated by companies including Total SA, Exxon Mobil Corp., Chevron Corp. and BP Plc. The country is attempting to diversify its economy away from the oil that accounts for about 80 percent of tax revenue and 45 percent of gross domestic product as it recovers from a 27-year civil war that ended in 2002.

The government is targeting $4 billion a year in foreign investment in areas including mining, agriculture, transport and hotels to help the nation rebuild, while so far it has attracted about half of that amount.

‘Behind Expectations’

The IMF forecasts economic growth of 6.4 percent this year in non-oil industries as the country boosts spending on the power industry and road construction. Growth excluding crude may reach 6.7 percent next year, followed by 7.1 percent in 2016 and 7.7 percent the year after, the lender’s data show.

The diversification effort “is behind expectations and a stronger effort is clearly needed,” Staines said. “This is particularly important in the context of higher government spending, softening oil revenue projections and, now, fiscal deficits.”

IMF forecasts for non-oil growth are lower than the government’s because the bank sees potential difficulties in large capital projects and holds more caution about their spillover effects, Staines said. For 2015-17, the government forecasts 10.3 percent non-oil growth in gross domestic product, while the IMF projects 7.2 percent.

Budget Deficit

The government posted a 1.5 percent budget deficit last year, the first since 2009 when the IMF began a $1.4 billion loan program to help the country weather oil prices that fell to $33 a barrel. This year’s budget deficit is expected to reach 2 percent and the fiscal balance won’t be in surplus until 2019, according to the lender.

The IMF expressed disappointment over the government’s inaccurate reporting of data on domestic arrears during 2010 and accounts payable the following year, which breached the terms of the loan agreement. The fund said it also regretted continued weaknesses in public financial management and called for decisive efforts to address arrears.

Angola “is very committed to address these difficulties” and passed legislation last year to improve arrears accounting and give more oversight to the Finance Ministry, Staines said. Domestic arrears, he said, shouldn’t impact on plans by the government to issue a $1.5 billion Eurobond in the third quarter.

‘Difficult Environment’

“The international financial environment is currently difficult and perhaps not the best of times for Angola to consider a Eurobond issue,” Staines said. “The government will presumably seek the advice of its capital market advisers to get a sense of the right timing.”

Economic growth probably slowed to 4.1 percent last year from 5.2 percent in 2012 as a drought slowed agricultural expansion, the IMF said. The lender commended Angola for cutting inflation to 7.7 percent in December from 9.02 percent a year earlier, creating a financial stability committee and combating money laundering.

“Addressing capital infrastructure constraints in transport, water, and electricity will go a long way and should have positive spillover effects on the economy,” Staines said. “But the full benefits will require a much stronger effort to address the structural constraints summarized in Angola’s very low ranking in the World Bank’s Cost of Doing Business index.”

The index ranks Angola 179th of 189 countries benchmarked to June 2013.

Oil Reserves

Angola is estimated to have recoverable oil reserves of 12.7 billion barrels, third on the continent behind Nigeria’s 37.2 billion barrels and 48 billion in Libya, according to the BP Statistical Review of World Energy published in June 2013.

Drillers including Statoil ASA and ConocoPhillips are testing the Atlantic mirror theory and plan to spend $3 billion on more than 32 wells this year in Angola’s largest exploration campaign. They’re searching for structures similar to those offshore Brazil where Petrobras is now developing the Western Hemisphere’s largest oil find in three decades, estimated at 20 billion barrels.

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