Fiscal dominance and sustainability of public debt in Angola: an analysis of the effectiveness of monetary policy through dynamic econometric models ARDL (2010–2025)

Abstract

This research analyzes the interdependence between public debt sustainability and the effectiveness of monetary policy in Angola from 2010 to 2025. The study is framed within the problem of fiscal dominance, a phenomenon in which the financing requirements of the public deficit constrain the autonomy of the National Bank of Angola (BNA) in controlling inflation. The general objective is to evaluate the extent to which the stock and profile of Angolan public debt limit monetary policy transmission mechanisms. To this end, the study employs a quantitative methodology based on the Autoregressive Distributed Lag (ARDL) model. This cointegration technique identifies short- and long-term relationships between variables with different orders of integration, specifically the debt-to-GDP ratio, the inflation rate, the BNA’s policy rate, the exchange rate, and the money supply. Preliminary results suggest that the debt's high foreign exchange exposure and the crowding-out effect in the banking sector weaken the interest rate channel, evidencing a strong presence of fiscal dominance during periods of oil shocks. The study concludes that the effectiveness of monetary policy in Angola is intrinsically linked to fiscal discipline and reduced dependence on external resources, with coordination between fiscal and monetary authorities as a sine qua non condition for macroeconomic stability.