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International Monetary Fund. African Dept.
The 2023 Article IV Consultation discusses that Angola’s economic recovery in 2021/22 was nearly halted in 2023 by a double shock in the first half of the year, as the oil sector weakened, and the debt moratorium ended. Growth is estimated at 0.5 percent for 2023, with an estimated contraction in the oil sector of 6.1 percent and softened non-oil growth at 2.9 percent. Economic growth is projected to recover in the near-term, supported by improved oil production and the recovery in the non-oil sector. Inflation is expected to remain temporarily elevated in 2024 and to gradually decline thereafter, as the effects of the subsidy removal and the pass-through from nominal exchange rate depreciation diminish. The recent monetary policy tightening is welcomed, while further improvements to monetary operations are required, including aligning the interbank market interest rate with the announced policy rate. The central bank (BNA) and the ministry of finance should coordinate money market operations to align interbank liquidity conditions with the announced interest rate corridor while fiscal domestic financing is undertaken through medium- to long-term issuances. The BNA should also continue its transition toward an inflation-targeting framework and greater exchange rate flexibility.
International Monetary Fund. African Dept.
This Selected Issue paper focuses on modeling monetary policy in resource-rich economics in Angola. This paper uses an extended semistructural New Keynesian model to simulate shocks and analyze policy scenarios in Angola. The model features Angola’s oil dependence and strong linkages between the oil sector and the exchange rate. The key objectives are to develop a forward-looking framework that can model the impact of shocks on an economy calibrated to mimic Angola, and inform monetary policy discussions with the analysis of various policy trade-offs. Shocks to the oil sector influence both the cyclical and structural levels of the economy, especially given the nature of ageing oil fields in Angola. All variables in the behavioral equations are expressed as gaps, defined as percentage deviations from their trend or equilibrium levels. The simulations highlight that improving monetary policy framework and credibility can lower output cost and economic volatility during shock periods.