Victor Lopes, economist with Standard Chartered Bank, provides a few pointers on the outlook for the year ahead in one of Africa’s key economies.

Economic outlook
• Standard Chartered expects Angola to be among the fastest growing African economies in 2010, with a GDP growth rate of 9%. 2009 was a difficult year, calling into question much of the progress achieved since 2002. Falling oil prices halted economic growth and pushed the twin balances into deficit, prompting the authorities to accumulate domestic arrears and impose restrictions on the foreign exchange (FX) market.

• The strong rebound will be driven by rising oil output and higher oil prices. Oil output is likely to average 1.9 million barrels per day (mbpd) in 2010, compared to 1.8mbpd in 2009. Non-oil growth will benefit from rising government spending resulting from the improvement in the fiscal accounts. Infrastructure spending and agriculture will be key drivers of non-oil growth (the non-oil sector represents 40% of GDP). The current account should return to surplus in 2010 thanks to rising oil exports. Capital inflows are also expected to help to increase the FX reserves from USD 12.1bn (as of October 2009).

Financial issues
• The government has announced that it will seek to tap the international bond market to raise USD 4bn. In the bank’s view, this is an ambitious target for a first issue. The country may also obtain a credit rating. Any rating would be supported by rising oil revenues and strong GDP growth but constrained by weaker savings and higher debt-servicing costs than in other oil-producing countries.  

Research Forecast: Angola
	2009	2010	2011	2012
GDP (real % y/y)	-0.2	9.0	8.0	7.0
CPI (% y/y)	14.0	15.0	10.0	9.0
Policy rate (%)*	15.0	15.0	14.0	13.0
AOA-USD*	84.0	82.0	80.0	80.0
Current account balance (% GDP)	-3.5	3.0	3.0	5.0
Fiscal balance (% GDP)	-11.2	2.8	7.0	9.0
* = end period
Source: Standard Chartered Research

• Angola obtained a USD 1.4bn loan from the IMF in November 2009, its first from that institution. This should support liquidity and boost confidence. The government plans to launch a sovereign wealth fund in 2010 in order to reduce the vulnerability of fiscal revenues to swings in oil prices.

Policy
• Standard Chartered expects the exchange rate to remain broadly stable in 2010. The normalisation of the FX market that took place in late 2009 following the devaluation of the Angolan kwanza (AOA) is likely to continue, with the spread between the official and parallel rates narrowing and FX shortages easing thanks to improved USD liquidity.

• The key objective of monetary policy is to bring inflation down to the single digits. However, we expect inflation to remain in the double digits given the impact of the weaker exchange rate on imported inflation and, more importantly, structural bottlenecks such as port congestion, which will remain a key obstacle to the disinflation process.

• Fiscal policy will be more expansionary, with a 19% rise in spending in 2010 thanks to rising oil revenues. The 2010 budget is based on a conservative oil price assumption of USD 58/barrel (bbl). Despite the rise in expenditure, we expect the overall fiscal balance to post a surplus given our oil price assumption of USD 80/bbl in 2010.

• Domestic payment arrears accumulated throughout 2009, mainly towards construction companies, are beginning to be repaid and will likely be cleared in 2010 as pressure on the public finances eases.

Politics
• A new constitution is currently being drafted. It remains unclear when presidential elections will be held.

This briefing is republished with the permission of Standard Chartered Bank.