Reflections on a more inclusive Monetary Policy in Angola

The conventional Monetary Policy (MP) defined and/or conducted by a monetary authority aims, in essence, to guarantee price stability, to promote employment, financial and exchange stability of a country. However, in the next lines, I try to present a disruptive perspective of the MP in order to make the strategy of financial inclusion in the PM of Angola viable without compromising the achievement of the objectives of the conventional approach.

I understand that if the National Bank of Angola (BNA) wants to have a more efficient MP, it must make it more inclusive. It must make it as accessible and perceptible to all population segments and markets as possible, and the intention should not be limited to the setting of differentiated credit interest rates for some sectors, nor to the establishment of mechanisms to increase the level of credit banking, such as Banquita.

The closest example of the intention to make MP more inclusive, in a disruptive approach, is based on the introduction of the Value Added Tax (VAT), which reinforced the inclusive approach to fiscal policy, by positively discriminating against Cabinda province with a rate of 2% and exempted from paying VAT on products in the basic basket. The same approach is seen, for example, in the Private Investment Law, where tax incentives to the least infrastructure areas of the country serve as an incentive to establish some private investment.

In contrast, fiscal policy has excessively favored Luanda province, while industrial policy has given greater priority to the country's coast. On the other hand, domestic trade policy has negatively discriminated against the more than 70% of families linked to informal economic activities, while foreign trade policy has been the lever for the disruption of the domestic productive fabric.

The current conventional MP has not escaped the rule. Their approach has been limited to what happens in the country's capital. However, Angola is still bigger than Luanda - See the case of Angolans in Kalandula, Malanje[1], who still carry out barter trade -. And as representative as the capital's economy may be, it is essential that the execution of the MP is based on the assessment of real, monetary and financial conditions of those who live and do business in Curoca and Nzento, and not only in the perception of reduced and/or excessive liquidity at the country's marginal.

Why is having this perspective important? Because it makes MP more inclusive and mitigates its distortions on economic activity, when they are restrictive, and reduces its effects when they are expansionist.

For example, while for Luanda, the evolution of price levels would be controlled, with the worsening of liquidity conditions, possibly, the development of new ones would be blocked, indiscriminately and with permanent effects, economic activities and job creation in Cunene. In other words, the price stabilization strategy in Luanda, via MP, with a high production rate and low unemployment levels, cannot be extended to Lunda Norte, which has a high unemployment rate and low price levels, for example.

Thus, what is proposed is that the PM, adjust to territorial specificities and adapt to the comparative advantages associated with each province of the country, making it necessary to define, for Cabinda, an active interest rate that adjusts to the cost structure that facilitates the exploitation of bauxite - see for example that the oil industry does not use the same interest rate for oil wells in Cabinda and Luanda - and that is different from the interest rate that is applied to open a hotel in Luanda.First, because creditors assign specific risk depending on the location and market conditions of the project in question. This fact, in an economy in which decisions are based on principles of rationality, has an impact on the viability of investment projects and on the willingness of families to contract consumer credit, for example.

Graph 1: Implicit Savings Rate by province

Thus, it would make sense to have financial margins - difference between active and passive interest rates - positive for some provinces and negative for others (See Graph 1)[2]. In other words, to guarantee for provinces with excess savings such as Cabinda, that the active interest rate is higher than that of liabilities, in order to promote consumption and ration credit. On the other hand, having negative margins for provinces, such as Uíge, with reduced savings may encourage savings and greater mobility of inter-province liquidity to finance production.

Second, it is impractical to require that a branch located on the Luau border, Moxico, have the same requirements in constituting minimum mandatory reserves - a mechanism that is impossible to apply in the current approach to conventional MP followed by the BNA -, that a branch in Ingombotas. First, because the first branch has very low and seasonal deposits to be managed between what remains in cash and what, possibly, will be channeled to credit - In an approach of transformation ratios, of deposits in credit, provincial -. Second, due to the high costs of transport and security with the movement of daily deposits from those locations to the regional centers of the BNA.

The more decentralized or/and decentralized approach to the implementation/definition of MP may have tangible results in the short term, with the possible equalization of price levels, deviation in demand for products with a high level of specialization by province, credit supply for sectors and provinces with higher marginal rates of capital and development of economic activities according to the comparative advantages of each province.

However, I recognize that it is a complex exercise and difficult to apply to a reality in which the margins for the execution of monetary policy instruments are reduced, and the paternalistic history of the economy has relegated MP to the background. However, it will be in line with the strategy of decentralizing economic policy. And it could be a starting point for the development of more inclusive economic policy instruments and banking products, aligned with the objective reality of the different microstructures of the Angolan economy, without neglecting price stability in the economy.

Souce: Jornal Expans?o, edi??o no 558

[1] Tvedten, Inge, Lazaro, Gilson, at al. Pobreza rural em Malanje, Angola Relatório do CMI, número 4, Novembro de 2017.

[2] The implicit savings rates by province were calculated by the difference between the national average consumption per month and the average gross income per month, for each province.