Angola faces additional difficulties in paying public debt

12 January 2015

Angola and countries such as Gabon and Nigeria will have increasing difficulties in paying their public debts as oil revenues fall and the depreciation of their currencies makes the value of the debt, namely in dollars, more expensive, according to an analysis by the United States’ Brookings Institution.

In an essay on the negative effects of lower oil prices in sub-Saharan African countries, among which is the second largest producer of this region, Angola, analysts at the Brookings Institution said that there are other associated problems, including difficulties in placing debt on the market, political risk in oil importing African countries, volatility in the markets of oil exporting countries and risks to the future of the economy of these countries.

In addition to this there are still some oil-dependent countries that depend on oil to balance the budget, as is the case of Angola and Nigeria, among others, and which do not have a big enough budgetary ‘cushion’ to accommodate the price drop, so “will be required to adjust expenditure or devalue the currency, which can lead to increased inflation.”

The problem, they point out, is that “cuts in public spending and rising inflation can boost social unrest, especially when they affect sectors of the population that are quick to show their discontent, such as students or trade unions.”

In contrast, oil-importing African countries are the most benefited, and ratings agency Fitch, cited in the text, even expects the decline in crude oil prices to boost the region’s growth to 4.5 percent in 2014 and 5 percent this year.

The last two trends noted in this analysis by the Brookings Institution, cited by Portuguese news agency Lusa, are the volatility of foreign exchange markets and dangers for the future of the economy in the exporting countries: in Nigeria, the local currency fell 10 percent since mid-June until the end of 2014, making it even more difficult for investors to withdraw their profits from the country.

The price per barrel in benchmark oil markets has fallen by over 50 percent since mid-June, down below the psychological barrier of US$50 since earlier this year, upsetting the public accounts of the countries that depend on oil exports to balance their budgets and forcing them to implement corrective measures to prevent runaway budgets. (macauhub/AO)