The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
Program Information Document
(PID)
Appraisal Stage | Date Prepared/Updated: 11-Jan-2021 | Report No: PIDA30602
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
BASIC INFORMATION
A. Basic Project Data OPS TABLE
Country Project ID Project Name Parent Project ID (if any)
Second Angola Growth and
Inclusion Development
Angola P168336 P166564
Policy Financing Operation
(P168336)
Region Estimated Board Date Practice Area (Lead) Financing Instrument
Macroeconomics, Trade Development Policy
AFRICA EAST 16-Mar-2021
and Investment Financing
Borrower(s) Implementing Agency
Ministry of Finance Ministry of Finance
Proposed Development Objective(s)
The development objective is to support the Government of Angola to achieve more sustainable and inclusive growth,
through (i) a macro-financial and institutional environment that is conducive to private-sector led growth; and (ii)
financial and social inclusion.
Financing (in US$, Millions)
FIN_SUMM_PUB_TBL
SUMMARY
Total Financing 700.00
DETAILS -NewFin3
Total World Bank Group Financing 700.00
World Bank Lending 700.00
Decision
The review did authorize the team to appraise and negotiate
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
B. Introduction and Context
Country Context
Angola suffered a fifth year of recession in 2020. Angola fell into a recession when oil prices declined in 2015, and their
further weakening in early 2020 has worsened the economic situation. GDP is expected to fall by 4 percent in 2020,
following a cumulative decline of 5.6 percent over 2015-19. An underperforming oil sector, its spillover effects to the
non-oil sector, and the time required for greater economic diversification following years of an overvalued exchange
rate and the state-led economic model made it difficult to spur economic growth even before the onset of the COVID-
19 pandemic. Rapid depreciation of the currency has contributed to high inflation and worsening debt ratios.
The government responded decisively to the COVID-19 crisis with health-related measures, protecting social spending
and supporting businesses, while maintaining the reform momentum in difficult circumstances. The Government is
implementing a National Contingency and Emergency Plan, led by a multisectoral task force at the President’s office. On
public health, mobility restrictions were implemented early on to limit the spread of the disease. The Government also
strengthened the capacity of the health system by increasing testing and establishing new ICUs equipped with
ventilators (partly supported by the World Bank’s urgent health sector response funding). On the economic front, the
Government implemented programs to assist businesses and individuals and reprioritized expenditures towards social
sectors. Under the revised budget for 2020, allocations to health and education increased as a share of the total budget,
to 6.0 and 6.5 percent respectively. The personal income tax was increased for wealthier individuals, while the corporate
income tax was reduced from 30 to 25 percent and for agriculture, silviculture, fisheries, and livestock it was lowered to
10 percent. The COVID-19 response did not dampen the reform momentum, with important policy measures taken on
fiscal responsibility, SOEs and financial sector reforms, and to improve the business environment.
Addressing elevated levels of debt, the key macroeconomic challenge, poses difficult trade-offs with social
expenditures and poverty reduction. The loss of revenues from oil has resulted in fiscal stress and mounting debt,
despite the government’s achievement of high primary fiscal surpluses in 2018 and 2019—in the order of 5.5 and 5.9
percent of GDP, respectively. Currency depreciation has further driven up the public debt burden, much of it in foreign
currency. Under baseline assumptions, using conservative oil prices and large primary surpluses in line with recent levels,
debt ratios are projected to decline rapidly over the next five years. However, the combination of large primary surpluses
(about six percent of GDP on average in 2021-2025) and interest payments of a similar size, will translate into limited
space for social spending. The Government has made efforts to protect social sectors in the context of adapting the
budget to a lower level of resources in 2020 and has agreed, as part of its IMF program, on a floor for social expenditures.
While recent initiatives to suspend debt service have been beneficial, more is needed to address elevated debt risks
and create fiscal space to increase social expenditures. Angola has obtained full debt service relief from its official
creditors under the DSSI through the first half of 2021. In addition, Angola reached agreements with two large Chinese
banks (outside the DSSI) to defer principal repayments for three years, thereby smoothing Angola’s debt service profile
beyond what DSSI participation by these creditors would have provided. Moreover, interest to one of the Chinese banks
will be paid from a collateral account that will not be replenished until 2023, hence providing further cashflow relief.
Notwithstanding these agreements, the debt stock, debt service and financing needs remain elevated. The risk of future
debt distress is high, especially from further oil price declines combined with currency depreciation.
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
Relationship to CPF
The DPF series reflects the priorities and objectives of the 2018 Performance and Learning Review (PLR) for Angola
which updated and extended the FY14–FY16 Country Partnership Strategy (CPS) through FY191. Policy areas
supported under the DPF series contribute to the two CPS focus areas; complement investment lending under the CPS;
and create policy underpinnings that can, together with the International Finance Corporation (IFC), harness private
sector opportunities and contribute to stronger and more inclusive growth. For example, DPF support to fiscal rules
and transparency aligns with the CPS objective under focus area 1 which seeks to strengthen resilience to
macroeconomic risks. Measures supported under the proposed operation will strengthen fiscal management and
reduce pro-cyclicality of fiscal expenditures. Support under the DPF to strengthen the management and commercial
viability of SOEs, increase access to finance; and improve the competition framework are aligned with CPS focus area
1 on promoting diversified growth and competitiveness, specifically the objective to improve the business environment
and deepen financial inclusion. The actions in the DPF series on levelling the playing field for private investment are
also aligned with CPS focus area 2 of laying the groundwork for expanded access to cost-effective economic services
(water, electricity, ICT, transport connectivity). The proposed operation is also aligned with the preliminary strategic
directions of the forthcoming Country Partnership Framework (CPF), which is under preparation but has been delayed
due to COVID-19 and associated changes to government priorities and need for support. These areas are further
supported by ongoing and recently completed ASA and lending operations, including the 2018 CEM (P162993); the
joint World Bank and IFC 2019 Country Private Sector Diagnostic (CPSD) (P167838 and IFC AS); programmatic technical
assistance to the energy sector (P169765); analytical work on subsidy reform (P168918); the ongoing business
environment RAS (P163763) and Financial Sector RAS (P147800); information and communication technology analytics;
lending for smallholder and commercial agriculture; and the Luanda Bita Water Supply Guarantee. The DPF series is
also aligned with the 2018 SCD, which highlights economic diversification and human capital investment as key areas
for reform.
C. Proposed Development Objective(s)
The development objective is to support the Government of Angola to achieve more sustainable and inclusive
growth, through (i) a macro-financial and institutional environment that is conducive to private-sector led growth;
and (ii) financial and social inclusion.
Key Results
This operation aims to achieve better outcomes in fiscal policy including fiscal pressures from SOEs, financial sector
stability, larger private sector participation and better protection and livelihood for the poor. This will be measured
by a set of 10 indicators.
Reforms supported under this programmatic series are already showing results. Following approval of DPO1 in July
2019, some results are already apparent, including:
• Improvements in the transparency of fiscal accounts, with quarterly fiscal and debt bulletins, a debt
management strategy, and an annual borrowing plan that emphasizes repayment of oil-backed debt and a
gradual reduction in FX-exposure (all published by the Ministry of Finance).
• Over 80 percent of deposit accounts insured by a newly established Deposit Insurance Fund.
1 PLR: Report No. 125072, dated 04/25/2018. CPS: Report No. 76225, date 09/26/2013.
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
• Approval of a privatization program which lists 195 public assets to be privatized, with 33 privatizations
completed by the end of 2020.
• Approval of a Public-Private Partnership law and regulations in line with international best practice to allow
entry of private partners in sectors such as public transport and healthcare.
• Establishment and operationalization of a competition agency to address market dominance by incumbent
firms and ensure fair competition in newly liberalized markets.
• Increase in non-oil foreign direct investment (FDI), from 0.2 percent of GDP in 2018 to 0.7 percent of GDP in
2019, including in agrobusiness and services.
• Adjustment of electricity tariffs following a 2019 World Bank tariff study to improve financial sustainability,
while protecting the poor through a lifeline tariff.
• Successful piloting and ongoing expansion of a cash-transfer program based on a unified social registry, with
365,000 households registered so far.
• Approval of the revised Payments Systems Law which will promote digital financial services.
D. Project Description
The objective of the Angola Growth and Inclusion DPO series is to support the government to achieve more
sustainable and inclusive growth, through (i) a macro-financial and institutional environment that is conducive to
private sector led growth; and (ii) financial and social inclusion. Targeted reforms under the two objectives mutually
reinforce and complement each other and are expected to make the country and its population more resilient to shocks
(including those caused or exacerbated by climate change), raise investor confidence, and foster fiscal sustainability and
private-sector-led, inclusive growth over the medium-term. The operation is organized around two pillars, each
including several policy areas:
• Pillar 1: Strengthening the macro-financial and institutional environment. Policy areas include:
Strengthening debt and natural resource management for fiscal sustainability (1.1); Strengthening financial
sector resilience (1.2); Strengthening management and commercial viability of SOEs (1.3); Supporting pricing
and subsidy reform for financial sustainability and effective service provision (1.4); and leveling the playing
field for private investment (1.5).
• Pillar 2: Protecting the poor and vulnerable. Policy areas include: Protecting the poor and vulnerable from
shocks (2.1); and increasing access to finance (2.2)
The prior actions in this proposed operation (DPF2) are generally in line with the indicative triggers proposed in the
previous operation of the programmatic series (DPF1, P166564). Most of the triggers foreseen in DPF1 for the second
operation have become prior actions for DPF2. However, given the relatively long time between the approval of DPF1
(in July 2019) and the submission of this proposed DPF2, as well as the COVID-19 pandemic and associated crisis, the
specific actions have been modified in some policy areas. Triggers for the third operation envisioned in the series (DPF3)
were also revised to adjust to the changed economic, fiscal and social outlook.
The proposed DPF operation will contribute to the government’s policy response to the COVID -19 pandemic. Public
finances have been negatively affected by the COVID-19 shock, due to loss of fiscal revenues (especially from oil) and
limited financing options. Consequently, the government’s COVID-19 response has been constrained by limited fiscal
space. The proposed DPF operation, with an augmented financing volume of US$700 million will provide much-needed
financing in support of the government’s response to the COVID-19 pandemic and its socioeconomic consequences. In
addition, the operation supports the government’s structural reform agenda, which has become even more urgent as
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
a result of the COVID-19 pandemic and will create the conditions for a stronger economic recovery in the years to
come.
E. Implementation
Institutional and Implementation Arrangements
The Ministry of Finance will remain responsible for collecting and monitoring information related to program
implementation and progress towards the achievement of the results. The Ministry of Finance (MOF), in close
collaboration with the Technical Steering Committee for the DPF, is responsible for coordinating necessary actions among
the agencies involved in the reform program supported by this DPF series. The World Bank has worked closely with the
Ministry of Finance and line ministries in order to define results indicators that are clearly spelled out and measurable,
giving preference to those that are collected on a regular basis in order to avoid an additional reporting burden.
F. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects
Poverty and Social Impacts
Policy and institutional changes supported by the proposed DPO are expected to have positive distributional impacts
and be pro-poor in the short-, medium, and long-term. Most prior actions are distributionally neutral and are expected
to contribute to improved economic and social outcomes by supporting the building of stronger institutions and more
functional markets. Prior action 6, which supports the establishment of a social protection system and cash transfer
program, is expected to have notable positive distributional results and reduce poverty, both in the near- and the long-
term, lifting 80,000 to 180,000 households out of poverty by early 2021 and reaching at least 300,000 households by the
end of 2021. Changes in fuel prices and utility costs will increase the progressivity of public spending but could also lead
to increased poverty. As originally conceived, this can be mitigated through the social protection system, including an
expansion—in scale and benefit amount—of the poverty -target cash transfer program (Kwenda).
Environmental, Forests, and Other Natural Resource Aspects
Actions supported by this operation are not likely to have major negative effects on the environment, forests, and
natural resources. Actions and reforms under pillar 1 (Strengthening the macro-financial and institutional environment)
are likely to have some environmental impacts. Tariff and subsidy reforms can contribute to a reduction in the use of
water, energy and fuel and, in turn contribute to fiscal savings, reduced greenhouse gas emissions and increased
opportunities for investment in energy saving technologies and renewable energy. On the other hand, if these reforms
result in price increases, this could lead to deforestation augmentation as result of an increase in the use of traditional
fuels such as wood and vegetal charcoal (for domestic use), thus causing more pressure in renewable natural resources
and in the ability of the ecosystems to provide goods and services. Such impacts will be mitigated though provisions that
support the access of low-income households to energy, such as lifeline tariffs and cash or in-kind transfers that help the
poor access clean cooking fuels. Protecting the poor and vulnerable from shocks and increasing access to finance
addressed under pillar 2 are not expected to have any direct or indirect environmental impacts or risks.
G. Risks and Mitigation
The overall risk of the proposed operation is assessed as high. Macroeconomic risks are assessed as high, while
Institutional capacity, Environmental and Social; and Stakeholder and fiduciary risks are all assessed as substantial. COVID-
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
19, the associated economic crisis and the fiscal stress pose have increased risks to a program that was already assessed
as high risks at the approval of DPF1. Macroeconomic risks are high due to the strong vulnerability to external shocks, high
public debt, decreasing oil production and slow growth. High debt levels and large financing needs in the short- and
medium-term, combined with dependence on volatile oil revenues make Angola particularly vulnerable. The fragile global
economic environment, with an uncertain recovery from the COVID-19 shock in 2021 adds to this risk. Macroeconomic
risks are partially mitigated by the demonstrated willingness of some creditors to reprofile bilateral debt, the
government’s commitment and track record of fiscal adjustments and push for reforms even in difficult circumstances
and an augmented IMF program, providing access to financing and support on macroeconomic reforms. Institutional
capacity risks derive from the lack of coordination and implementation capabilities in Angola´s institutions to implement
the complex reforms agenda. Accompanying World Bank lending and technical assistance to the government on reform
implementation mitigates these risks. The supported reforms are multisectoral, requiring coordination and information
flow between central and sectorial ministries as well as SOEs and more autonomous agencies. Environmental and social
risks result from the expected negative impacts on the most vulnerable groups, as a result of the fuel price and utility tariff
readjustment. Stakeholders risks emerge from vested interests and resistance to the reform program. The operation
supports reforms that affect adversely many interest groups with strong political ties. Also, public support to the
operation´s objectives may start to fade if reforms are not well communicated and the benefits are slower to materialize.
.
CONTACT POINT
World Bank
Cornelius Fleischhaker, Mazen Bouri
Senior Economist
Borrower/Client/Recipient
Ministry of Finance
Osvaldo João
Secretário de Estado
osvaldo.joao@minfin.gov.ao
Implementing Agencies
Ministry of Finance
Osvaldo João
Secretário de Estado
osvaldo.joao@minfin.gov.ao
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The World Bank
Second Angola Growth and Inclusion Development Policy Financing Operation (P168336)
FOR MORE INFORMATION CONTACT
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 473-1000
Web: http://www.worldbank.org/projects
APPROVAL
Task Team Leader(s): Cornelius Fleischhaker, Mazen Bouri
Approved By
APPROVALTBL
Country Director: Jean-Christophe Carret 07-Feb-2021
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