The International Monetary Fund (IMF) has received a formal request from Angola to initiate discussions on an economic programme that could be supported by financial assistance.

Tiago Dionisio, Assistant Director at Eaglestone, said this announcement is not a major surprise as the many challenges that Angola currently faces due to the sharp fall in the oil price of the last two years are clearly evident.

“Economic growth has not only slowed considerably to 2.9% last year from 4.8% in 2014, but inflation has returned to double-digits (20.3% in February). In addition, net international reserves at the central bank have fallen nearly 20% from $30bn in June 2014 to $24.2bn in February. As a result, Angola does not have many options at the moment.”

“We also believe that the announcement that the country intends to implement an economic diversification plan with the support of the IMF is positive news as it increases the credibility of the local authorities’ intent to reduce the country’s dependence on oil,” he added.

The IMF said that it stands ready to help Angola address the economic challenges it is currently facing by supporting a comprehensive policy package.

According to the IMF, the support package will aim to “accelerate the diversification of the economy, while safeguarding macroeconomic and financial stability”.

Discussions are expected to commence at the forthcoming IMF Spring meetings in Washington DC. in mid-April and shortly thereafter in Angola .

The Ministry of Finance also released a statement highlighting that Luanda will seek assistance with “improving fiscal discipline, simplifying the tax system and increasing transparency in public finances and the banking sector”.

Furthermore, diversification efforts will focus on expanding activity in the agriculture, fisheries and mining sectors.

Cobus de Hart, Analyst at NKC African Economics, said that the fact that Luanda approached the Fund for technical assistance is “certainly a good sign, and the associated credit disbursements will ease some of the pressure on the fiscus and also help finance the large current account shortfall”.

De Hart added that it will be interesting to see just how many strings are attached to the loans and how willing Luanda will be to abide by the rules of the programme.

“One sticky point may relate to the kwanza exchange rate. Whether monetary management will fall under the scope of the programme remains to be seen, but it is hard to imagine that it won’t. Another question that springs to mind is what the Fund’s advice on currency management will entail,” he said.

“In our view, with crude oil prices hovering around $35/bbl (and given the depressed medium-term outlook), further kwanza devaluations will do little to alleviate forex scarcity, and a kwanza adjustment that would restore balance to the market (or at least have a significant impact on forex availability) may come at the expense of sharply higher inflation – tighter monetary policy will have little success in containing price pressures in this case,” he added.

“Regardless, efforts aimed at improving public financial management, strengthening institutions, improving transparency and accelerating diversification will certainly prove beneficial over the medium to long term,” he concluded.