Bloomberg News

Angola Should Cut Fuel Subsidies, Smooth Spending, IMF Says

February 22, 2013

Angola, Africa’s second-biggest oil producer, should cut fuel subsidies and smooth the cycle of spending tied to commodity prices, the International Monetary Fund said.

The country spent about 6.3 percent of economic output on fuel subsidies in 2011, compared with outlays of 1.7 percent for education and health that were the lowest in the sub-Sahara region, according to the IMF.

Fuel subsidies are unfair because they benefit the rich who drive SUVs more than the poor, Nicholas Staines, the IMF’s representative in Angola, said in a presentation late yesterday in the capital, Luanda. He advocated spending the money on improving the country’s social safety net.

Angola’s parliament approved a budget on Feb. 14 that incorporated the operations of state oil company Sonangol EP for the first time. It forecast a deficit of $4.1 billion, based on an average crude price of $96 a barrel. Angola depends on oil for about 40 percent of economic output and 70 percent of government revenue.

Staines said Angola needs a stabilization fund to save money when oil prices are high. He didn’t say whether the $5 billion sovereign wealth fund that Angola set up in October will fulfill that task. It’s supposed to function both as a stabilization fund and to help reconstruction after Angola’s civil war, which ended in 2002, according to its statutes.

High Costs

Staines said the government is discussing a law that would set an oil-price level below which ministers would be authorized to draw on reserves.

He also praised the central bank’s success in reducing inflation, which slowed to 8.9 percent last month from 13.7 percent in August 2011, while adding that “it can go quite a bit further.” He said high prices mean that constructing 1 kilometer of road in Angola costs $2 million, compared with $1 million in Mozambique, another former Portuguese colony.

The IMF loaned Angola about $1.4 billion starting in 2009 to back an overhaul of the economy and greater financial transparency, after the country was hit by oil prices that fell to about $33 a barrel.

Companies including Exxon Mobil Corp. (XOM:US), Chevron Corp. (CVX:US), BP Plc (BP/) and Total SA (FP) pump about 1.8 million barrels of oil a day in Angola, second only to Nigeria in Africa.

To contact the reporter on this story: Colin McClelland in Luanda at cmcclelland1@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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