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Angola turns to IMF for bailout amid oil price fallout

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Angola has requested a bailout from the International Monetary Fund which could be worth more than $1.5bn, making the Opec member the latest oil-producing country to seek international help to cope with the fallout from low crude prices. The IMF said on Wednesday that it had received a request for a three-year programme from Angola and would be discussing the terms of its assistance during next week’s spring meetings of the IMF and World Bank in Washington. Under the fund’s rules the southern African nation is eligible for a little over $500m in assistance annually unless it receives special waivers.

The move marks the second time in seven years that Angola, which produces some 1.6m barrels per day of oil and is second only to Nigeria as an African producer, has turned to the IMF for help. In 2009 it secured a $1.4bn emergency loan from the fund which it is still in the process of repaying. It also reflects the growing stresses being felt by oil producers across the developing world that have been hit hard by a collapse in crude prices and are now struggling to plug the gaps left by dwindling revenues. Countries ranging from Azerbaijan to Nigeria have been engaging in discussions with the IMF, World Bank and other multilateral institutions over how to plug holes in their budgets and stave off crises.

“The sharp decline in oil prices since mid-2014 represents a major challenge for oil exporters, especially for those economies that have yet to become more diversified,” Min Zhu, the IMF’s deputy managing director, said. “The IMF stands ready to help Angola address the economic challenges it is currently facing.” Angola is one of the first developing world producers to turn to the IMF for help as a result of the recent price drop, with many others until now preferring to deal with the World Bank and other lenders who set less demanding conditions for their help.

The World Bank last June approved a $650m package of loans for Angola to help it cope with falling oil prices and rein in spending on fuel subsidies among other things. The continuing fall in oil prices since then has meant, however, that things have become worse for Angola. In its most recent review of the Angolan economy, the IMF in November predicted that oil revenues for 2015 would fall below 15 per cent of gross domestic product, down from almost 40 per cent of GDP in 2011. But that prediction came before the further fall in global oil prices seen earlier this year.

At the time the IMF urged Angola to consider introducing a value added tax and to do more to bring public sector salaries under control. Angola’s finance ministry said it was committed to reforms and diversifying the economy away from its dependence on oil, which in 2015 accounted for more than 95 per cent of export earnings and 52 per cent of government revenues. “The government will work with the IMF to design and implement policies and structural reforms aimed at improving macroeconomic and financial stability, including through fiscal discipline,” it said.

John Ashbourne, Africa economist for Capital Economics, said any assistance package for Angola would have to be “hefty” with external financing needs this year alone likely to be as much as $8bn, or 9 per cent of GDP. It also would mark a change for Angola which in recent years has preferred to rely on China for help rather than western lenders. An IMF package “should reduce the risk of a messy balance of payments crisis”, he said, but it would also have to be accompanied by painful austerity measures.

At the time the IMF urged Angola to consider introducing a value added tax and to do more to bring public sector salaries under control. Angola’s finance ministry said it was committed to reforms and diversifying the economy away from its dependence on oil, which in 2015 accounted for more than 95 per cent of export earnings and 52 per cent of government revenues. “The government will work with the IMF to design and implement policies and structural reforms aimed at improving macroeconomic and financial stability, including through fiscal discipline,” it said.

John Ashbourne, Africa economist for Capital Economics, said any assistance package for Angola would have to be “hefty” with external financing needs this year alone likely to be as much as $8bn, or 9 per cent of GDP. It also would mark a change for Angola which in recent years has preferred to rely on China for help rather than western lenders. An IMF package “should reduce the risk of a messy balance of payments crisis”, he said, but it would also have to be accompanied by painful austerity measures.

– FT

 

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