2024-09-03 23:07:30
Increasing delays in paying Angolan state debt to Chinese contractors highlight debt risks amid an uncertain outlook for global oil prices, according to Africa Report.
According to the Africa Report, arrears owed by the Angolan government increased to 3.9% of GDP in 2023, up from 2.1% in 2022. The IMF estimated that arrears have stabilized at around 2.6% of GDP this year. But delays could increase again, said an analyst cited by the African Report.
Most of the debt service arrears are denominated in dollars, and the kwanza has depreciated by around 6% this year. Angola owes about 1.6% of its GDP in dollars to Chinese contractors for infrastructure projects. The government has not yet established a clear plan to eliminate the backlog.
Brent oil fell to $73.75 a barrel today. Angola needs the price to be over 75 dollars to be comfortable serving the debt. Any price below $70 makes it “challenging” for the government to repay the debt, and a sustained price below $60 would be a “distressed end,” which could lead the government to the IMF, according to Africa Report .
Angola will have an external debt service of US$9.5 billion per year between 2025 and 2027, according to S&P Global. According to analysts cited in the Africa Report, it would be better for Angola to approach the IMF before the situation becomes difficult to manage. The same analyst claims that Ghana allowed the situation to progress too late and ended up having to accept high levels of conditionality for bailouts. The Angolan Government had difficulties paying public service salaries.
Oil, inflation and diversification
In the last 10 years, oil had long periods below $60 in 2014, 2015, 2016 and 2017, and also during Covid-19. In the previous decade oil was below $60 in 2004 and much of 2005. Therefore, the euphoria caused by a temporary rise in the price of oil risks creating a false sense of sustainability and pushing economic diversification down the agenda political.
Angola has suffered “severe sensitivity” to oil price shocks since the global price collapse of 2014-2016, an economist at Oxford Economics in South Africa said, adding that this sensitivity is exacerbated by the administration’s rapid accumulation of external debt years Angolan President Eduardo Dos Santos.
A continued reduction in the price of oil to less than $70 per barrel or a reduction in oil production to less than a million barrels per day would require serious interventions by the IMF.
An analyst cited by Africa Report predicts that Angola’s production level of 1.1 million bpd can be maintained, but sees no evidence that it can be significantly increased. The 2014 crisis, he notes, “really discouraged investors” and led to years of underinvestment in oil.
High inflation limits the government’s room for manoeuvre. The annual inflation rate rose to 31.0% in June, compared to 30.2% in May. There is a risk that high inflation will continue, which could lead to protests and strikes, forcing the government to reduce fiscal consolidation, said a South African economist at Oxford Economics, quoted by the Africa Report .
Current progress towards economic diversification and non-oil revenue mobilization is slow, with little prospect of rapid progress. The obstacles to doing business in Angola will “take a long time to reform”.
The external sector is still under pressure, although the Minister of State for the Economy said that China’s debt service would be eased after President João Loureço’s visit to China in March this year. The state of public finances is critical, requiring swift intervention by the government to stabilize the macroeconomic situation.
By: José Correia Nunes
Executive Director of Portal de Angola
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