Drop in oil prices increases cost of financing Angola

17 December 2014

The benchmark interest rates on loans taken on by Angola have been increasing due to falling oil prices, while the rate for five-year bonds rose by 71 basis points to 7.72 percent, according to financial news agency Bloomberg.

Bloomberg also reported that all benchmark rates on loans to African States, especially those most dependent on oil, rose significantly, as in Angola’s case, whose increase of 71 basis points occurred over a single week.

This means that if Angola is to obtain international financing, the interest rate the market is willing to offer is 7.72 percent per annum for five-year loans, higher than the rate charged to Nigeria, Africa’s largest economy and the largest oil producer south of the Sahara, which pays 7 percent interest on five-year bond issues.

According to Bloomberg, the reason for the rise in interest rates in these countries, as well as in Ghana, Gabon and Kenya, among others, is directly related to the drop in oil prices, which has a direct impact on the budgets of these countries that depend on oil exports for most government expenditure.

Angola, the second largest sub-Saharan oil producer after Nigeria receives 76 percent of its tax revenues from the oil sector, whose exports account for over 98 percent of the country’s total. (macauhub/AO)