Angola: African Development Bank Approves $165 Million for Economic Diversification

The Board of Directors of the African Development Bank Group (www.AfDB.org) on Tuesday approved a $165 million loan to finance part of Angola’s three-year economic diversification support program intended to restore the country’s macroeconomic stability.

Angola President João Manuel Gonçalves Lourenço

The Angolan government is implementing reforms to diversify its oil-dependent economy and has adopted measures to improve human and social development to restore fiscal balance after the economy was hit by a global slump in oil prices and repeated droughts.

The program aims to prioritize and promote the production and export of non-oil products and to start to substitute imports through diversification. It forms part of the country’s 2018-2022 national development plan.

There are three main components in the plan; advancing fiscal consolidation through improved public financial management and tax reforms; accelerated implementation of the diversification program; and improving governance in natural resource management and state-owned enterprise reform.

Abdoulaye Coulibaly, African Development Bank director at the governance and public financial management department, said the loan will contribute significantly to the government’s stabilization plan and provide a conducive private sector environment.

“For the past two years we have felt that the authorities are quite committed to make changes. Many concrete measures have been taken… We expect that the program will ultimately impact positively on macroeconomic stability, economic diversification and poverty reduction” Coulibaly said, adding that the country was on track to meet its benchmarks for 2019.

The reforms are expected also to improve state-owned enterprises (SOEs) transparency and increase the availability of SOE financial and performance data which will in turn improve corporate governance and enhance the performance of SOEs, reducing the need for subsidies, he added.

In approving the loan, Board members called for the monitoring of Angola’s high public debt levels, estimated at about 90% of GDP, and projected to ease to around 60% by the end of the program period. They praised renewed efforts by the Angolan government to curb public sector corruption and step up good governance which had deteriorated.

A sharp decline in oil prices since 2014 has harmed the economy, and real GDP shrank by 0.2% in 2017 and an estimated 0.7% in 2018 while fiscal revenues declined by more than 50% between 2014 and 2017. Public debt, largely external, increased from 40.7% of GDP in 2014 to an estimated 80.5% in 2018, raising concerns about its sustainability.

The Bank Group has regularly provided diversified support covering agriculture, rural development and environment, health and education, water and sanitation to Angola’s development efforts. To date, the Group has provided eight loans for a total of $122.4 million to the country

IMF COUNTRY FOCUS: Egypt Moving Forward, Key Challenges and Opportunities

The most important issues that face Egypt over the coming years are tied to a rapidly growing population, the modernization of its economy, and how best to ensure a modern social safety net to protect the most vulnerable in society. Below, Subir Lall, who leads the IMF team on Egypt, discusses these three issues. 

Cairo, Egypt: Scene from the busy Khan El Khalili bazaar in Cairo. Khan El Khalili is a major souk in the Islamic district of Cairo (photo: Ictor/Getty Images by iStock)

1. Take advantage of the rapidly growing population

Over the next five years, around 3.5 million young Egyptians are projected to join the labor force. Absorbing these new entrants into the labor market will be a challenge. However, this also creates a tremendous opportunity for faster growth—if Egypt can support the emergence of a strong and vibrant private sector to productively employ this emerging generation of workers.

Over the past several decades, the private sector in Egypt has been less dynamic and outward-oriented than in peer countries, with a small share of firms able to compete outside the domestic market. To foster greater private sector development and export-led growth, the authorities have broadened the structural reform agenda under their program, initiating reforms to improve the efficiency of land allocation, strengthen competition and public procurement, improve transparency of state-owned enterprises, and tackle corruption.

2. Modernize the economy

With nearly 100 million people and a geographic location that provides excellent access to important foreign markets, Egypt has immense potential. However, economic development has been constrained by the legacy of inward-oriented economic policies, weak governance, and a large role for the state in economic activity that has resulted in significant misallocation of resources.

With the economy now stabilizing, Egypt’s challenge is to modernize its economy to better take advantage of its potential. An essential element of that process is to ensure the best allocation of resources to generate higher growth, and remove price distortions that impede markets from functioning efficiently.

Energy subsidies have been among the most significant price distortions. They keep fuel costs well below the market price, which encourage inefficient use of energy and overinvestment in capital intensive industries to take advantage of low fuel costs. Energy subsidies are costly and inequitable, tending to benefit the well-off who are disproportionately large energy consumers.

Pricing energy correctly will help improve economic efficiency so that investment is not channeled to capital intensive and heavy energy-use sectors. Rather, investment should be made into job creating sectors that benefit small and medium-sized businesses that take advantage of Egypt’s strengths, and help integrate the country into global supply chains. Reducing energy subsidies also frees up resources for health and education—critical to long-term economic growth and societal progress.

3. Provide a modern social safety net to protect the vulnerable

As Egypt begins to modernize its economy and make it more competitive, it will also need to continue to bring down public debt to a level consistent with long-term sustainability. The challenge is to ensure that the most vulnerable segments of society are protected during this process, and that fiscal resources are safeguarded for spending on health and education.

The shift away from a social protection system based on energy subsidies is crucial in moving toward a better-targeted and more effective social safety net. The 2018/19 budget will continue to replace poorly-targeted energy subsidies with programs that directly support the poorest households through expanded cash transfer and food subsidy programs. The authorities have strengthened programs like food smart cards, and more than doubled the amount of assistance provided through these cards.

The government has also strengthened social solidarity pensions, and the Takaful and Karama cash transfer programs. Takaful is an income support program for families with children, and Karama is a social inclusion program for persons who cannot work, specifically the elderly and people with disabilities.

These efforts are also being supported by reforms to improve the efficiency of government spending and tax collection to ensure that pro-poor spending and investments in health and education are protected. More broadly, the faster creation of private sector job opportunities and the integration of women into the labor force as part of the authorities’ inclusive growth strategy is expected to steadily improve living standards, including for lower-skilled workers.

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The article is published courtesy of the IMF

IMF implores Liberia authorities to pursue institutional reforms to reduce poverty

An IMF assessment of Liberia‘s economy indicates that the country appears poised for recovery, but significant fragilities remain, as reflected in the pressure on the exchange rate and on fiscal resources resulting from declining aid inflows.

President of Liberia George Tawlon Manneh Oppong Ousman Weah

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Liberia on June 8, 2018.

The Executive Directors noted that ’assuming sound policies, the medium‑term outlook is favorable, albeit with risks’

The directors welcomed the authorities’ pro‑poor agenda and noted that macroeconomic stability is essential for advancing this agenda. They stressed the critical need to mobilize resources, ensure debt sustainability, and pursue structural and institutional reforms to achieve higher growth and reduce poverty.

A new government is in place, with a mandate to achieve ambitious development objectives. Liberia’s economy appears poised for recovery, as growth bottomed out in 2016 and edged to 2.5 percent in 2017. However, Liberia remains fragile with poor living conditions for the majority of the population. Moreover, a decline in aid inflows, which were elevated during 2014–16, has put pressure on the exchange rate and fiscal resources. The government is thus facing the daunting task of pursuing a demanding development agenda in the face of high expectations, while also managing near-term adjustments and safeguarding macroeconomic stability.

The directors underscored the need to anchor fiscal policy with the goal of ensuring debt sustainability over the medium term, and urged the authorities to increase efforts to mobilize additional domestic resources, including by enhancing the IT system of the revenue authority to improve tax compliance and efficiency.

They also emphasized that improved governance, and greater fiscal transparency and accountability are key to improving spending efficiency, and also welcomed the authorities’ efforts to contain the public wage bill and encouraged redirection of budgetary expenditures to capital spending, especially for rebuilding infrastructure.

The directors emphasized that future debt obligations should be undertaken transparently, limiting new debt to concessional terms, with effective implementation of infrastructure projects, underscoring that maintaining macroeconomic stability will also hinge on effective implementation of monetary policy.

“To equip the Central Bank of Liberia (CBL) with effective operational tools, its recapitalization would be necessary,” the directors noted, and stressed the need to safeguard international reserves, and preserve governance principles and central bank independence.