Angola should raise taxes and eliminate fuel subsidies to help offset plummeting revenue as oil prices plunge, the International Monetary Fund said.
“First, get taxes up,” Nicholas Staines, the IMF’s resident representative in Angola, said in a presentation in Luanda, the capital, on Thursday. “I absolutely love taxes. It’s how a state runs. Without taxes, no state.”
Oil prices have slumped by more than half since June, cutting revenue in Angola, where crude accounts for almost all of exports and more than two thirds of government income. Authorities have slashed the oil price estimate in the 2015 budget to $40 a barrel from $81 a barrel and are due to publish a revised spending plan next month.
Budget revenue will probably drop by $17 billion and oil exports fall by $27 billion based on a $45 a barrel oil price and 2014 average production of 1.66 million barrels a day, Staines said. Angola pumped 1.81 million barrels a day in January, according to data compiled by Bloomberg.
Angola should abolish fuel subsidies, Staines said, echoing comments from IMF Managing Director Christine Lagarde, who said in an interview on Jan. 28 that African nations should focus on preserving revenue in the face of falling oil prices.
“Fuel subsidies: Get rid of them,” he said. “They’re regressive, they’re costly and they benefit the rich.”
Angola spent about 4 percent of its 2013 budget subsidizing fuel prices and lowered them twice since September. The government has already cut education spending, frozen government hiring, set import quotas, rationed foreign exchange and made arrangements to borrow 882 billion kwanzas ($8.4 billion) through treasury bills and bonds.
The Washington-based IMF has had no formal discussion with the government to lend money to Angola as it did six years ago ago with a $1.4 billion aid program, Staines said. The economy is in better shape than it was when oil prices fell in 2008-09 because foreign reserves are higher, inflation is lower and the government is better coordinated to respond, he said.
Angola must work at returning to a fiscal surplus within a few years, Staines said. The current budget projects a deficit of 7.6 percent of gross domestic product.
“What Angola has to get away from is this boom-bust cycle that when prices are high they spend and when prices are low they cut back,” he said. “That’s the medium-term challenge.”