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ANGOLA’S FINANCIAL CRISIS: OIL PRODUCTION SHOCKS TRIGGER INFLATIONARY PRESSURES AND JOBLESS GROWTH

Luanda, Angola - A Brewing Economic Crisis

Angola’s economic woes have deepened in recent months, with a major maintenance shutdown in the first half of 2023 causing oil production to fall short of expectations. The resulting currency depreciation and increase in gasoline prices have fueled inflationary pressures, driving year-on-year inflation to 24% in February 2024.

Heavy Reliance on Oil Exports

The country’s economy has been heavily reliant on oil exports, which account for over 90% of its foreign exchange earnings. However, the decline in oil production has led to a shortage of foreign currency, triggering a 40% depreciation of the kwanza against the US dollar in May-June.

Non-Oil Sector Slows Down

The non-oil sector has also slowed down, with key inputs affected by the cost-push shock and a one-off adjustment in gasoline prices in June. As a result, the government has been forced to trim other expenses to cope with reduced revenues and high debt service payments.

Economic Growth Revisions and Jobless Growth

Angola’s economic growth has been revised down to 0.8% for 2023, with the country struggling to create jobs to keep pace with its growing working-age population. Over 550,000 new workers joined the labor force between end-2022 and end-2023, but only 10,000 jobs were added.

Unemployment Soars

Urban unemployment surged to 42% at end-2023, up from 39% a year earlier, while youth unemployment reached 58%, up from 53%. The economy is expected to rebound in 2024 driven by non-oil sectors, but the long-term decline of the oil sector remains a major concern.

Dependence on Oil and Challenges Ahead

The country’s dependence on oil has increased its vulnerability to external shocks and undermined macroeconomic stability. Strong real exchange rate appreciation has stunted the non-oil economy and limited economic diversification and job creation.

Urgent Investment Needed

Despite the challenges, Angola is expected to make progress in 2024, with inflation projected to decline starting mid-year. The government has taken steps to contain inflationary pressures through monetary policy tightening and a conservative fiscal stance.

However, the country’s high debt levels and lack of investment in key sectors such as agriculture remain major concerns. With abundant agricultural land and favorable climatic conditions, agriculture is seen as having the highest potential to drive diversification and growth.

Externally-Facing Challenges

Angola needs to urgently invest in removing barriers to private sector investment to achieve economic diversification and support growth, job creation, and poverty reduction. The country’s exposure to extreme climatic events is also expected to increase water scarcity, raise temperatures, and extend dry seasons, hurting agricultural productivity.

International Commitment to Peace and Stability

Internationally, Angola continues to be assertive and committed to peace and stability in Africa, particularly in the Democratic Republic of Congo where it has led regional efforts to end instability in the Great Lakes Region.