Angola: Lower Growth Expected

Global ratings agency Moody’s Investors Service this month lowered its ratings on Angola, citing lower growth prospects for the African nation. With its outlook also placed on “stable” from negative, the agency cites lower economic strength in light of a “diminished” medium-term outlook.

Key drivers of the decision pointed to foreign currency shortages, ongoing high inflation and weak banking system. “Angola still faces the difficult challenge of diversification away from its heavy reliance on oil,” the agency said.

Angola’s fiscal strength has also materially decreased with indebtedness nearly doubling in the past four years, with liquidity risk remaining elevated due to the country’s significant gross borrowing requirements. In addition, Moody’s points to Angola’s debt-to-GDP ratio as remaining “vulnerable to further currency devaluation and potential crystallization of contingent liabilities from the public sector.”

In September of this year Fitch Ratings also took action on Angola, noting that even with pressure on oil persisting, the government has taken no action on its currency, despite calls for it to be weakened. “The authorities have resisted pressures for the currency to weaken further since April 2016 after earlier devaluations and the tight fiscal stance has prevailed, but foreign currency is in short supply, inflation is high and growth prospects subdued.”

Despite A Pivotal Election, Pressures Remain

Angola’s  general election held on August 23 was a “notable political event” for the country. President dos Santos, who has ruled the country since 1979, was not running and a new president, Joao Lourenco, the current defense minister and, like dos Santos, a member of the ruling People’s Movement for the Liberation of Angola (MPLA), will soon take the reins. The MPLA won the elections by a large margin, securing 61% of the votes, although this is down from 72% in 2012. Fitch expects the new government to support policy continuity in the near term, not least because dos Santos will remain president of the MPLA.

External pressures in the form of low dollar liquidity and declining net international reserves, despite higher oil prices and a decreasing current account deficit are hitting Angola hard, with no short-term remedy in sight.

The stable outlook placed by Moody’s reflects the broadly balanced credit pressures at the agency’s B2 rating level, with a gradual recovery supported by the oil sector, “albeit still well below the average growth rate recorded in the preceding
decade.”

It also reflects the current account’s continued improvement, and the government’s large fiscal adjustment in the past two years aimed at reducing its fiscal imbalance.