Angola’s Economy: Past, Present and Future

1. Angola’s Economy: Past, Present and Future Ricardo Gazel, World Bank Senior Economist and Acting Country Manager Viking Club August 27, 2009

2. Angola’s Economy: Past, Present and Future • Recent Past: High Rates of Growth • Present: The Mother of all Crisis and the Impacts on Angola’s Economy • Future: Medium and Long Runs

3. I. Recent Past: High Rates of Growth • 1.1 Economic Growth • 1.2 Inflation • 1.3 External Sector • 1.4 Public Sector • 1.5 Social Gains

4. Nominal and Real Economic Growth

5. I. Recent Past: High Rates of Growth • 1.1 Economic Growth • 1.2 Inflation • 1.3 External Sector • 1.4 Public Sector • 1.5 Social Gains

6. Inflation

7. I. Recent Past: High Rates of Growth • 1.1 Economic Growth • 1.2 Inflation • 1.3 External Sector • 1.4 Public Sector • 1.5 Social Gains

8. Trade Balance – US$ billions

9. Oil Exports (Volume and Price)

10. Net International Reserves (US$ Millions)

11. External Debt including Arrears

12. External Debt / GDP

13. I. Recent Past: High Rates of Growth • 1.1 Economic Growth • 1.2 Inflation • 1.3 External Sector • 1.4 Public Sector • 1.5 Social Gains

14. Fiscal Revenues(Billions of Kwanzas)

15. Fiscal Results(Billions of Kwanzas)

16. Composition of Public Expenditures

17. I. Recent Past: High Rates of Growth • 1.1 Economic Growth • 1.2 Inflation • 1.3 External Sector • 1.4 Public Sector • 1.5 Social Gains

18. Social Gains in the Last Years • Reduction of Poverty • Improved Human Development Indicators • Gains in the fight agains HIV/AIDS, malaria, etc.

19. Angola’s Economy: Past, Present and Future • Recent Past: High Rates of Growth • Present: The Mother of all Crisis and the Impacts on Angola’s Economy • Future: Medium and Long Runs

20. The Mother of all Crisis • Financial Crisis: • Stock Markets Collapsed in many Advanced and Developing Countries • Nacionalization of Fannie Mae and Freddie Mac • Bancrupcy of Banks and Insurance Companies • Liquidity Crisis • Others

21. The Mother of all CrisisGrowth Rates Estimates(IMF – April 2009)

22. Impacts in Angola • Financial Market and Foreign Investment • Remitances and Foreign Aid • Real Economy – Prices of Primary Products

23. Financial Market and Foreign Investment • Likely small as: • No stock market • No strong connection of domestic bank system with international financial markets (except via Portuguese banks) • Small interbaking credit market • Low loans to deposit ratios

24. Impacts in Angola • Financial Market and Foreign Investment • Remitances and Foreign Aid • Real Economy – Prices of Primary Products

25. Remessas e Ajuda Extrangeira • Low Level os Remitances compared to other African Countries • Outflow Remitances Larger than Inflow Remitances • Foreign Aid share of Budget is Marginal

26. Impacts in Angola • Financial Market and Foreign Investment • Remitances and Foreign Aid • Real Economy – Prices of Primary Products

27. Real Economy Economic Growth Inflation External Sector Public Sector Risks

28. Different Estimates of GDP Real Growth Rate for 2009

29. Oil ProductionMillion Barrels per DayOPEC Monthly Oil Market Report

30. Oil ProductionMillion Barrels Day OPEC Monthly Oil Market Report

31. Others Sectors • Sector Positive Negative • Agriculture and Fishing High • Extractive Industries Low • Oil and Gas Low • Diamants e other extractives High • Manufacturing Low • Construction Low • Services Medium

32. Real Economy Economic Growth Inflation External Sector Public Sector Risks

33. Yearly Inflation

34. Yearly Inflation

35. Inflation • In favor of a decline: • Decline in International Prices • Domestic Economic Slowdown • In favor of an increase: • Devaluation of the Kwanza • Supply Constraints

36. Real Economy Economic Growth Inflation External Sector Public Sector Risks

37. External Sector • Dramatic Decline of Export Revenues • Limited Decline of Imports (Less elastic in the short run) • Current Account Deficit • Sharp Decline in International Reserves • Cash Flow Problems with Balance of Payments • Financing Needs

39. Net International Reserves (US$ millions)

40. External Debt / GDP

41. Real Economy Economic Growth Inflation External Sector Public Sector Risks

42. Public Sector • Lower Revenues • Drastic Cuts in Spending • How to Finance the Deficit? • High Cost, low demand for government bonds

43. Exports, Price and Oil Taxes

44. Real Economy Economic Growth Inflation External Sector Public Sector Risks

45. Risks • Global Recession • Fiscal and Monetary Policies • Fiscal Policy: • Budget Adjustments • Payment Delays to Suppliers • Financing the Fiscal Deficit (High Cost) • Monetary and Exchange Rate Policies: • Required Reserves • Exchange Rate policy • Social Impacts

46. Social Impacts • Increase in Poverty • Worsening of Human Development Indicators • Potential increase in hunger • Infant Mortality • Political and Social Stress

47. Angola’s Economy: Past, Present and Future • Recent Past: High Rates of Growth • Present: The Mother of all Crisis and the Impacts on Angola’s Economy • Future: Medium and Long Runs

48. Prespectives for the Futuro:Medium Run • At the Global Level: • Bad News: Recession in 2009 and increased unemployment. Price of OIL? • Good News: Some indicators show improvements and that the crisis may have hit bottom, but recovery will be slow • In Angola: • Prepare for the Future • Diversification • Reforms

49. Growth by Sector

50. Diversification • Why? • Where is Angola? • How to Diversify? • Challenges: How to surpass them