The Ordeal of a Petrostate Amidst Declining Oil Revenue and Implications on Budgetary Objectives: An ARDL Bound Test Approach for Angola

Abstract

The combination of the quest for renewable energy for global decarbonisation and the decrease in economic activities across the world due to the COVID-19 pandemic has brought about the incessant plunge in the oil prices leading to a sharp decline in oil revenues of most of the oil-exporting countries. Hence, deterioration in trade, a decrease in economic growth, and inability to meet the nation's fiscal needs. This study analyses declining oil revenue implications on the budgetary objectives of the oil-exporting countries—the case of a petrostate, Angola, which is the second-largest oil exporter in sub-Sahara Africa. The Autoregressive Distributed Lag (ARDL) Bound Test Approach is used to estimate the model's parameters.  Yearly time series data for 39 years (1981-2019) were employed for the empirical analyses.  The unit root tests were first carried out using the Augmented Dickey-Fuller (ADF) and Philips Peron's (PP) Tests.  The Unit Root results indicate that all the variables are stationary at level I(0) and at first difference I(1).  This outcome was the basis for the choice of the ARDL estimation technique for the analyses. Primary data were also used to supplement the secondary data analysis.  The results show that Angola's government revenue decreased significantly as oil price declines, which indicate that Angola is overwhelmingly relying on oil exports for its sustainability.  Contrary to expectation, the results reveal that a percentage decline in oil price exerts a positive and substantial impact on the Angolan economy's government expenditures, financed mainly through borrowing and seigniorage.  It is highly recommended that Angola diversifies their revenue base, develop other mineral resources in the economy aside oil and ensure effective management of government funds.  However, an economic model is proposed to close the revenue gap in this highly oil-dependent nation.

Keywords: Petrostate, ARDL Bound Test Model, Declining Oil Revenue, Ordeal, Oil Price

DOI: 10.7176/JESD/12-10-04

Publication date:May 31^st 2021