Executive Summary
Angola is highly exposed to natural disasters and climate change that threaten vital ecosystems, with droughts and floods being the most serious perils. Droughts are infrequent but tend to have a prolonged negative impact in rural areas, while floods are more frequent and localized in urban areas, causing direct damage and economic disruption. Climate change is expected to increase the frequency and severity of weather-related disasters, and the economic cost of disasters could further increase because of a growing economy and population.
Vulnerable households and micro, small, and medium enterprises (MSMEs) are highly vulnerable to climate shocks. In the absence of protection measures, progress in poverty reduction and shared prosperity may easily be undermined by the high levels of households’ vulnerability to climate and other covariate shocks, including weather-related ones. There is also a critical need for financial protection solutions to strengthen the resilience of the small and medium enterprise sector because of its strategic importance in job creation.
The cost of disaster response in Angola is borne largely by the government, as emergency official development assistance covers only a small share of it and there is a large insurance protection gap. Between 2011 and 2020, emergency development assistance covered only 8 percent of the total response cost, leaving a significant burden to the public sector and a potential protection gap for the population and economy.
The current approach to disaster risk financing is to retain risks with budgetary mechanisms, relying heavily on ex post budget reallocations and supplementations (extraordinary credits), and with some ex ante contingent budget lines in place. The country has a general contingency budget for unforeseen expenditures, including those from climate shocks, and some sectors finance post-disaster interventions with ex ante contingent budgets. The Ministry of Agriculture and Forestry is the most advanced, with an operational contingency budget line and a prearranged contingent emergency component available for post-disaster response (figure ES.1). There is an opportunity for expanding the use of prearranged financing and for transferring risk to the private sector.
The execution of post-disaster interventions is well coordinated by permanent civil protection commissions that include the civil protection, finance, and other key sectors. At the national level, the main executive body is the National Civil Protection Commission (CNPC) and, as a member of the CNPC, the Ministry of Finance mobilizes funds for disaster response in coordination with the affected sectors. The same structure is replicated at the local levels, and municipalities and provinces may seek support from higher levels of government if they cannot respond to the event with their own resources.
Overall, if funding is available disbursements can be agile, but public funding for disaster response is increasingly tight, particularly at the local level. While timelines can be shortened according to the severity of the event and the available funds may be allocated in a matter of days or even hours, mobilization of funding for recurrent, smaller events has been more challenging, potentially causing delays to the response.
Currently, budget volatility due to oil price shocks limits the Government of Angola’s ability to respond to shocks
in a needs-based and sustainable way. Historically, disaster response spending in Angola has been driven by the
availability of resources (thus indirectly driven by oil revenues): Government support following natural disasters
declined significantly after the 2015 oil price shock despite the similar numbers of events and people affected by
them, dropping from US$4.7 billion per year on average between 2008 and 2014 to US$1.1 billion between 2015
and 2020.
Moreover, despite its reliance on risk retention, the fiscal risk management frameworks currently in place in
Angola do not explicitly address climate-related risks. Multiple units of the Ministry of Finance (MINFIN) manage
contingent liabilities of various types, but none is responsible for those related to climate. The macrofiscal
programming unit within MINFIN, for example, is responsible for monitoring risks to fiscal targets and debt
sustainability, but climate risks are not explicitly considered within the scope of its fiscal risk analysis. There is a
need for a fiscal risk model that captures climate-related risks to inform the budgeting process and for the inclusion
of climate risks in the scope of the annual fiscal risk assessments required by the Fiscal Responsibility Law