Based on the latest oil price performance, the year ahead should prove to be quite challenging for Angola, according to the latest research by Eaglestone Advisory.

Tiago Dionisio, Assistant Director, Eaglestone, said the evolution of oil prices will dictate the local authorities’ budget execution in 2016.

“We note that the country remains highly dependent on the oil sector for its fiscal revenues (estimated to account for 57% of the total in 2015 vs. 72% in the previous year) and as a source of international reserves (oil represents nearly 97% of total exports),” he said.

According to Bloomberg data, the price of Brent crude oil averaged $58 in 2015, but stood below $38 at year-end.

This represents a drop of nearly 49% and 67%, respectively, from the aforementioned high recorded nearly 18 months prior.

Meanwhile, Brent prices remain depressed in the first weeks of 2016, reaching a multi-year low of $27.8 on January 20.

Overall, oil prices have fallen a further 18% year to date and have averaged $31.7 thus far.

Consensus estimates suggest that oil prices are unlikely to see a rapid recovery in the short-term due to the oversupply that still exists in the market and persistently high oil inventories.

According to Eaglestone’s calculations, an average oil price of $30 this year would have a negative impact of 16% on the Angolan government’s budgeted revenue forecast (assuming an implied tax rate of 35.1% expected in the 2016 budget).

“In other words, it means that revenues would fall $3,634m short of expectations. In our worst case scenario (average price of $30 and implied tax rate of 30%) revenues would get a hit of nearly $4.7bn while the budget deficit would reach 10.6% of GDP (vs. 5.5% expected in the 2016 budget),” noted Dionisio.

“If oil prices were to recover to an average of $50, for instance, then revenues would improve $1,211m from this year’s budget and the deficit would stand at 4.2% of GDP,” he said.

“We have lowered our real GDP growth estimates for 2016 to 3.2% (vs. 3.5% previously), as we expect non-oil growth to remain weak. This figure is marginally lower than the authorities’ target of 3.3%. We then expect a modest improvement to 3.6% in 2017,” he added.