Chinese credit supports Angolan State financing needs

16 July 2018

Credit granted by Chinese banks will support the financing needs of the Angolan State Budget for this year, which should signal a multi-level policy shift for the country, according to the International Monetary Fund (IMF).

The IMF considers in its latest report on Angola that the financing needs of the Angolan state are “substantial” in 2018, but that “they seem to be manageable given the benign external environment.”

Funding needs, according to the IMF, will be met by domestic credit, but also “by external sources, including China and other bilateral creditors, multilateral institutions, such as the World Bank and African Development Bank, commercial banks, and issues of foreign currency bonds worth US$2 billion.”

External financing linked to public investment projects is “mostly secured,” but the greater reliance on domestic bank financing, “may be difficult to achieve as commercial banks report being close to their limits of domestic exposure to sovereign risk,” said the report.

The IMF added that it may be necessary to consider “exploiting the appetite” of the markets for more bond issues, which “would help further diversify the mix of sources of finance, ease the pressure on domestic debt markets and increase public debt maturity.”

The National Assembly approved a budget for 2018 considered prudent by the IMF and other international institutions, aiming at an improvement in the primary non-oil budget balance of 2% of GDP.

In the report, the IMF stresses that since the election in 2017, the government of President João Lourenço, “has started to implement policies aimed at restoring macroeconomic stability and improve governance,” including the fight against corruption.

Hit hard by the sharp fall in oil prices that began in mid-2014, the Angolan economy suffered, “an even greater erosion of budgetary and external buffers,” before the August 2017 elections due to the fixed exchange rate policy followed until then.

The overall budget deficit increased to 6% of GDP and public debt, including state oil company Sonangol, reached 64% of GDP in 2017, while gross international reserves fell to the equivalent of six months of imports and the difference between the black market and the official exchange rate rose to 150% in 2017, noted the IMF.

The new government launched a macroeconomic stabilisation programme in early January, which foresees fiscal consolidation, greater exchange rate flexibility, a 60% reduction in the debt-to-GDP ratio over the medium term, improved debt profile through the management of liabilities, settlement of arrears of domestic payments and effective enforcement of anti-money laundering legislation.

According to the IMF, “structural reforms are properly aimed at promoting private sector growth,” while the new government is making concerted efforts to improve the business environment.

Among the new measures highlighted in the report is a programme to diversify exports and replace imports, the Competition Law, which aims to end “monopolistic practices in key sectors such as telecommunications and cement production,” and the Private Investment Law, “which eliminates barriers to foreign direct investment.” (macauhub)