Angola Removes Diesel Subsidies, Risks Inflation Shock

Angola has scrapped diesel subsidies in a bid to redirect funds to critical sectors such as health and education, following advice from the International Monetary Fund (IMF). The move is expected to free up as much as $3 billion, roughly equal to the country’s combined health and education budgets, according to Bloomberg.

The decision immediately pushed diesel prices up 50% to 300 Kwanzas ($0.33) per liter, from 200 Kwanzas previously. This is the second subsidy cut in less than a year, after prices were raised from 140 kwanzas to 200 Kwanzas in April 2024.

Despite being one of Africa’s largest oil producers, Angola does not refine its own crude domestically and relies on costly imports for fuel. This means subsidies have become an unsustainable burden on state finances, especially amid volatile oil prices.

Luanda hopes to stabilize its economy, support social spending, and maintain recent signs of economic recovery by eliminating these subsidies. “Removing subsidies will allow the government to invest in critical infrastructure and improve living conditions,” an IMF representative noted in a recent advisory.

Angola’s move mirrors  Nigeria’s controversial subsidy removal, Africa’s largest oil producer, in mid-2023. Like Angola, Nigeria also does not refine most of its crude domestically, importing refined petroleum products at high costs. While both governments promised that savings would go into health, education, and infrastructure, Nigeria’s experience has been turbulent, with subsidy removal driving hyperinflation, skyrocketing transport costs, and widespread hardship.

Angola’s policymakers are hoping to avoid a similar fate by managing the transition carefully, but the risk remains that inflation could erode any gains before the benefits of redirected spending become visible.

However, this policy shift comes with immediate pain for consumers in a country where the World Bank estimates that over half of Angola’s 37 million people live on less than $2 a day. Transport costs are expected to rise sharply, potentially triggering inflationary pressure across sectors.

Truck drivers and transport unions have already expressed discontent. “We’re not happy with the increase in fuel prices,” said Sabino Vieira da Silva, president of the Angola Truck Drivers Association, which represents about 3,500 members. 

The government faces the challenge of balancing long-term fiscal health with short-term social stability. A similar decision to cut gasoline subsidies in 2023 sparked violent protests in Huambo, leading to deadly clashes between taxi drivers and security forces that left at least five people dead.

The subsidy removal is part of a broader economic reform plan to reduce dependency on oil revenues and stabilize public finances. Yet, in a fragile economy where most citizens are poor, the measure could test the government’s ability to deliver social investments fast enough to offset rising living costs.