Angola to cut budget as fifth year of recession looms large

LAGOS, March 29 (Reuters) - Angola’s finance minister said the country’s economy will contract by 1.21% in 2020, marking a fifth year of recession, as the coronavirus and a slump in oil prices batter its finances.

Finance Minister Vera Daves de Sousa said Africa’s third-largest economy is freezing 30% of its “goods and services” budget and recalibrating spending plans based on a maximum oil price of $35 a barrel - $20 lower than previously envisaged.

She said the “deterioration of the surrounding economic environment” was having a significant impact on the oil-producing nation.

Crude oil prices - slammed by a coronavirus-related drop in demand and a battle for market share between Saudi Arabia and Russia - have fallen precipitously, with Brent crude settling a little below $25 a barrel on Friday.

Angola’s capital expenditure has been suspended until the budget review is complete, according to a statement issued after a Council of Ministers meeting on Friday, and Daves de Sousa warned that the country will experience an increase in exchange rate depreciation and higher than expected inflation.

She added that the budget freeze would exclude food, medicine, cleaning and sanitation expenditure. She also said that the planned end to subsisidised fuel would be postponed and that humanitarian aid and donated imports would be exempt from value added tax and customs duty.

“We will do everything so that this pandemic reaches the smallest number of Angolans,” she said.

The Angolan sovereign wealth fund, meanwhile, will release a total of $1.5 billion, Daves de Sousa said, on condition of future repayment through increased tax on the Bank of Angola’s rolling debts.

Daves de Sousa said that oil production, which provides the bulk of government funds, is expected to fall to 1.36 million barrels per day (bpd) and that the average carat price for diamonds, another key Angolan resource, had dropped to $100.30 from $162.

Angola has been mired in recession since 2016, with oil production dropping at its ageing offshore fields.

The government is in the midst of a number of sweeping reforms aimed at diversifying the economy away from oil, streamlining oil regulations to attract investment and reduce bloated state spending. (Additional Reporting By Victoria Waldersee in Lisbon Editing by David Goodman)