Angola: Government opts for fiscal expansion in 2025 to stimulate growth

• Fiscal position deteriorates already in 2024 when budget will post deficit of 1.5% of GDP, against target for surplus of 0.02%
• Primary fiscal expenditure, excluding debt interest, is estimated at AOA 16.9tn, representing 32.2% y/y increase
• Revenues are projected to increase by 19.3% y/y, but plans to achieve that remain vague

After a couple of years of fiscal surpluses underpinned by high oil prices, the government has decided to take an expansionary stance in 2025, hoping higher spending will stimulate growth. The 2025 budget foresees a fiscal deficit of 1.7% of GDP, reflecting total tax revenue equivalent to 21.9% of GDP and fiscal expenditures, which include primary expenses and debt interest, amounting to 23.6% of GDP. Nonetheless, the updated data showed the fiscal loosening actually started already in 2024 when the fiscal budget is expected to end the year with a deficit to the tune of 1.5% of GDP, indicating significant deterioration from the original projection of a surplus of 0.02% of GDP this year. The 2025 deficit target represents a 1.7pps increase compared to the original 2024 target, but only 0.2pps increase from the updated 2024 year end projections.

In 2025, fiscal policy is set to be expansionary. The fiscal projections supporting the 2025 General State Budget (OGE) foresee Interest expenses on debt for 2025 to be AOA 4.4tn, representing 4.8% of GDP, dwon from AOA 5tn in 2024. Primary fiscal expenditure, excluding debt interest, is estimated at AOA 16.9tn, representing a 32.16% increase compared to the 2024 year-end estimate of AOA 12.8tn and 67% increase compared to the original 2024 budget plan.

Key Components of Primary Fiscal Expenditure:

• Wage Bill: The government envisions a 25% increase in nominal wages. Limited new hires are planned in education and health to support priority social goals.
• Goods and Services: Spending is set to increase slightly from 3.1% of GDP in 2024 to 4.8% of GDP in 2025, with a focus on accommodating needs in priority areas like health, education, and basic sanitation.
• Transfers (including price subsidies): A decrease is expected, from 4.76% of GDP in 2024 to 2.40% in 2025, reflecting ongoing fuel subsidy reforms, despite increased spending on social benefits aimed at controlling social inequality and vulnerability. This support aims to provide greater assistance to vulnerable families and ensure social protection keeps pace with growing demand, mitigating economic impact.
• Capital Expenditures: As a percentage of GDP, capital spending will increase by 2.3pps percentage points, from 4.5% of GDP in 2024 to 6.8% in 2025, focusing investments on key projects with the highest growth returns.

While the document contains exhaustive reports on the spending plans, there are almost no comments in regard to revenue collection and how they plan to fulfill their plan for 19.3% y/y current revenue increase to AOA 19.8tn. Oil revenues are projected to increase by 8% which seems optimistic in view of the assumption of lower 2025 average oil price at USD 70/barrel, down from USD 83/barrel in 2024 and the forecast of only 0.08% increase in oil output. Non-oil revenue growth is targeted to increase by 10.1% next year and finally the other revenue increase is projected at nearly AOA 2tn y/y but so far the government has not shared any details on how it plans to achieve both.

The 2025 overall general state budget is estimated at around AOA 34.63tn,up by 40.13% y/y. This accounts for the total fiscal expenditure of AOA 21.3tn (61.6% of the budget) and financial operations expenditure of AOA13.3tn (38.4% of the total budget), covering debt repayments amounting to AOA12.5tn and capitalizations of AOA 836.3bn.

Key takeaways from the functional expense breakdown are as follows:

• Social Sector Growth: Social spending rises sharply by 50.1%, reaching 8.3% of GDP. This includes substantial investments in education (+42.4%) and health (+42.4%), highlighting a government priority to enhance human capital and social welfare. Notable is the increase in social protection (+58.5%), likely aimed at supporting vulnerable populations amid economic challenges.
• Economic Sector Investment: The economic sector budget more than doubles (+129.1%), led by agriculture, forestry, fishing, and hunting (+308.46%) and energy (+146.83%). These expansions reflect Angola's commitment to economic diversification beyond oil and boosting rural productivity, potentially improving food security and local industry support.
• Defense and Public Order: Defense and security spending grows by 54.56%, reaching nearly 3% of GDP.
• General Public Services: Expenditures in this category show 81.07% growth, driven by executive bodies (+134.26%) and financial/fiscal affairs (+159.03%).
• Debt Service Commitments: Financial expenditure, including debt service, comprises over 51% of total budget spending. Domestic debt operations increase by 9.8%, while external debt servicing grows by 24.08%, reflecting Angola's ongoing debt obligations. Notably, debt service remains a heavy fiscal burden, limiting funds available for other critical areas.
• Primary Expenditure Increase: Primary expenditure, excluding debt interest, surges by 67.02%, underscoring Angola's commitment to domestic priorities, especially in infrastructure and social services.

The 2025 budget signals Angola's strong commitment to social development and economic diversification, although debt servicing still consumes a considerable share of resources. The fiscal expansion, with targeted social and economic investments, aims to foster growth and resilience amidst external and internal challenges. The continuation of fuel subsidy removal is positive news. The high reliance on oil sector performance remains an issue and oil receipts continue to contribute to 50% of the total revenue, albeit with declining share. Stil, the forecast of nearly 8% oil income growth seems ambitious when combined with a projection of lower oil price and almost unchanged oil output. The plans to achieve even faster growth in non-oil revenue have been rather vague. Last but not least, the high reliance on debt may pose sustainability risks if economic growth does not match fiscal commitments in the medium term.