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How Bad Is Angola’s Oil Slump? IMF Is Going To Find Out

How Bad Is Angola’s Oil Slump? IMF Is Going To Find Out

International Monetary Fund officials are making a visit to Angola, where oil revenue accounts for almost half the Angolan GDP and the economy is reeling from the drop in international crude prices, Reuters reports.

Benchmark Brent is trading below $50 a barrel, close to its 2015 low after an 18 percent drop in July.

Oil revenues make up a significant part of the gross domestic product of many African countries, MGAfrica reported. In 2014, Africa produced 8.2 million barrels of crude oil a day, and more than 76 percent of it came from Nigeria, Angola, Algeria, and Egypt.

Economies that are not diversified, such as the Republic of Congo, Gabon and Angola, will be hit hardest and might have to adopt austerity measures and revise their budgets, PwC said in the recently published PwC Africa Oil and Gas Review 2015.

The IMF mission, led by Ricardo Velloso, the global lending body’s Africa director, will assess Angola’s ability to manage the impact of falling oil revenues, Reuters reports.

“The team of the IMF will also collect data and evaluate the economic and financial policies that establish the basis to allow structural transformation,” the IMF said in a statement, referring to the need for reform to loosen the country’s dependence on oil and manage public finances better.

Angola is Africa’s third-largest economy, its No. 2 exporter of crude and the No. 4 producer of diamonds but the country suffers from inequality and corruption, Reuters reports. An estimated 68 percent of the population lives below the poverty line and 15 percent live in extreme poverty, according to the RuralPovertyPortal.

Angola ranked 148th out of 186 countries on the 2012 Human Development Index. In rural areas, 94 percent of households are poor.

An Angolan member of parliament from the opposition UNITA party said the economic crisis in Angola right now is an “unprecedented” and the government can’t meet its obligations.

“There is no money for work, for parliamentary missions, there is no money for parliamentary travel, even to pay for breakfast,” Adalbert da Costa Junior told Reuters.

“The risks to the Angolan economy are not just limited to the implementation of austerity measures,” PwC reported, according to M&GAfrica. “A reduced budget could mean the government is not able to pay civil servant salaries and a reduction in the provision of social services. This could increase the risk of social instability,” the report warned.

Angola has one of the strongest and most advanced militaries in Africa, which it set about modernizing when times were good, World Politics Review reports.

Angola has already revised its 2015 budget, and defense and security spending were the least affected by lower oil prices, said Francisco Galamas, a Portuguese international security analyst.

The country boosted its military budget from $3.5 billion in 2010 to $6.8 billion in 2014. The 39-percent spike in defense spending in 2013 alone, from $4.7 billion to $6.5 billion, was more than any other sub-Saharan country, according to World Politics Review. Much of that money was spent on procurement deals abroad.

“By comparison, social spending on important areas like education and health was cut 28.6 percent (in the 2015 budget,) even with staggering inequality on the rise, driven by the oil boom,” according to World Politics Review.

Angola relies on oil sales for 95 percent of its foreign exchange revenues, Reuters reports.

President Jose Eduardo dos Santos multi-billion dollar loan agreements with China in June, angered citizens who accuse the political elite and Beijing of hoarding the spoils of oil revenue among themselves, according to Reuters.

China has lent Angola around $20 billion since its 27-year civil war ended in 2002. Repayments were often made with oil or cash directly to Chinese companies operating in Angola.

African Development Bank expects Angola’s economic growth to fall from 4.5 percent in 2014 to 3.8 percent in 2015, M&GAfrica reports. The price of oil will have a bigger effect on business over the next three years than any other factor, according to all Angolan respondents in a PwC survey.

If Angolan political elites want to maintain the political progress of the past decade and attempt to address social inequality, they should remember that previous public sector investments and social spending were the main drivers of Angola’s postwar stability—not its military apparatus, Galamas said in World Politics Review.