Angola and Mozambique are both exposed to risks of over-indebtedness

20 January 2020

Angola and Mozambique are among the African countries whose debt burden places them in a situation of financial risk, which may keep investors away, according to the World Bank.

In the Global Economic Outlook 2020 report, released in January, the World Bank estimates that the debt of governments in the sub-Saharan Africa region will reach 62% of Gross Domestic Product (GDP), on average, in 2020, 22 percentage points higher than the level recorded in 2011.

“This overall increase of public debt has led to sharp increases in interest charges and agglomeration of non-financial expenditure, raising concerns about the sustainability of the debt,” said the report.

Among the countries with high debt burdens are Angola, Ghana, Mozambique, Namibia, South Africa and Zambia, and they are considered, “susceptible to sudden increases in risk aversion of the investor,” the report said.

“This could lead to a considerable exchange rate depreciation, capital outflows and increases in the costs of loans because the risk premiums increase dramatically. Where the debt is largely denominated in foreign currency, strong devaluations of the currency may make debt servicing more complicated,” said the World Bank.

The Angolan Minister of State for the Economy, Manuel Nunes Júnior, recently said that more than half of the Angolan 2020 State Budget, in the amount of approximately 15 billion kwanzas (more than €27 billion), is earmarked to pay public debt, with a weight of 90% of GDP.

In the case of Mozambique, the International Monetary Fund (IMF) estimates that public debt in 2019 rose to 108.8% of GDP and that it will reach 106.8% in 2020, remaining above Gross Domestic Product until 2023.

The Global Economic Outlook 2020 report also identified Mozambique as one of the countries where the current account deficit grew most, due to “imports of capital related to major infrastructure projects.”

The World Bank restated its downward review of Angola, pointing to a contraction of GDP of 0.7% in 2019, “as oil production dropped for the fourth consecutive year due to lower yields of oil fields in decline and delayed investment in new capacity.”

“However, the growth of the non-oil sector was further strengthened by several important reforms and the business environment continued to improve,” it added.

This year Angola is expected to climb out of recession, with an estimated growth of 1.5%, which is expected to accelerate in the following years.

This prediction, the report said, “assumes that the structural reforms – supported by prudent monetary policies and fiscal consolidation – allow for greater macro-economic stability, and to continue the improvement of the business environment and strengthening of private investment.” (macauhub)