Angola: Deep Dive Into Debt - Zahabia Saleem Gupta Associate Director -Sovereign Ratings - S&P Global
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Angola: Deep Dive Into Debt Zahabia Saleem Gupta
Associate Director – Sovereign Ratings
Feb. 14, 2022
This report does not constitute a rating actionKey Takeaways
– We raised the rating on Angola to ‘B-’ from ‘CCC+’, with a stable outlook, on Feb. 4, 2022. We expect Angolan
government debt will continue to fall to 64% of GDP through 2025, from a peak of 131% in 2020. The decline in debt is
contingent on favorable oil prices that should prevent sharp currency depreciation.
– Although Angola’s debt levels are high, close to 40% comprises concessional loans from bilateral and multilateral
lenders. Angola relies heavily on Chinese loans, which made up about 40% of government external debt and nearly
30% of total government debt as of end-2021.
– The ratings on Angola are constrained by high external debt servicing requirements that will increase sharply from
2023 as restructuring agreements with two key Chinese banks end and repayments restart. External interest and
principal payments will average more than $6 billion annually (5%-6% of GDP) over 2023-2025.
– We currently view committed funding sources and foreign exchange reserves as sufficient to mitigate immediate
liquidity risks. However, rising global interest rates could affect investor sentiment and raise borrowing costs for
Angola.
2Angola’s Falling Debt Levels Support Improved Creditworthiness
Angola’s Debt Trajectory Is Tied To Exchange Rate Movements And Oil Prices
140 100 Government debt – Government debt fell sharply by more than
55 percentage points in 2021 to 75% of GDP,
120 80 helped by the sharp increase in oil prices and
Exchange rate
depreciation* (right
resulting exchange rate appreciation.
100 60 scale) – The record high debt level of 131% of GDP in
Change in Brent oil 2020 largely stemmed from exchange rate
80 40 prices (right scale) depreciation over 2018-2020 following
% of GDP
currency liberalization.
%
60 20 – The high proportion of debt denominated in
foreign currency (80%) exposes Angola to
40 0 volatility in debt valuation.
– Oil exports make up more than 90% of
20 (20) current account receipts and are a key
determinant of exchange rate movements.
0 (40)
2018 2019 2020 2021 2022 2023 2024 2025
*Negative represents currency appreciation. Sources: Angola Ministry of Finance, Banco Nacional de Angola, S&P Global Ratings.
3Fiscal Reforms And Non-Oil Economic Growth Key To Reduce
Deficits
Oil Prices and Angola’s Fiscal Outcomes Are Correlated
– Angola’s oil receipts contribute about 50% of 10 140 Fiscal deficit
government revenue, down from more than 8 130
60% in 2018-2019. Brent oil
6 120 price (right
– Higher oil prices supported an estimated scale)
fiscal surplus of 3% of GDP in 2021. 4 110
– We currently assume oil prices at $75 per 2 100
barrel (/bbl) in 2022, falling to $65/bbl in
% of GDP
$/bbl
2023 and $55/bbl in 2024 and beyond, 0 90
compared with $71/bbl in 2021. (2) 80
– Angola’s fiscal trajectory will depend on
(4) 70
ongoing reforms to increase non-oil revenue
and the pace of economic diversification (6) 60
away from the hydrocarbon sector.
(8) 50
(10) 40
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Sources: Angola Ministry of Finance, S&P Global Ratings.
4Angola Relies Heavily On Chinese Debt
– As of end-2021, external debt made up about 70% of total debt. Of the $19 billion owed to China, more than 80% comprised oil-backed
facilities. We view these loans as bilateral in nature.
– Commercial external debt comprised about 43% of total external debt, with outstanding Eurobonds making up 17%.
Breakdown Of Angolan Government Debt Chinese Loans Comprise A Significant Portion Of External Debt
Domestic debt
External commercial
debt
11%
Multilateral debt
30% IMF Supplier credit
4% $4.5 billion $4.0 billion
Commercial / multilateral banks
$8.4 billion
29% China Development Bank
20%
5%
Industrial and
Commercial Bank of
China World Bank
30% China Exim Bank
$3.0 billion $2.0 billion
African
Industrial and Development
Commercial Bank of China Development Bank Eurobonds China Exim Bank Bank
$13.6 billion $8.0 billion $2.5 billion $1.2 billion
China
Source: Angola Ministry of Finance. Source: Angola Ministry of Finance.
5Angola’s Large External Debt Redemptions Add To Funding Risks
– Angola’s total funding needs will peak in 2023 at 10% of GDP after the debt restructuring agreements with two Chinese banks end.
– External debt servicing will increase to $5.6 billion over 2023-2024 and nearly $7 billion in 2025, from $4.3 billion in 2022.
Funding Needs Are Dominated By External Debt Repayments External Interest And Principal Repayments Will Rise From 2023
12 12 Amortizing external 7 7 Other
debt
10 10 6 6 Multilateral lenders
Amortizing
domestic debt*
8 8 5 5 Other bilateral lenders
Other§
6 6
% of GDP
Industrial and Commercial
% of GDP
4 4
Bil. $
Bil. $
Bank of China
Fiscal deficit
4 4 3 3 China Exim Bank
2 2 Total funding needs 2 2 China Development Bank
(right scale)
0 0 1 1 Eurobonds
(2) (2) 0 0 Total external debt
2022 2023 2024 2025 2022 2023 2024 2025 servicing (right scale)
*Based on debt currently contracted. §Other includes recapitalization of public entities and clearance of Sources: Angola Ministry of Finance, S&P Global Ratings.
arrears. Sources: Angola Ministry of Finance, S&P Global Ratings.
6Angola’s Funding Mix Will Rely Mainly On Existing Lenders
External Debt Will Comprise About 60% Of The Total Funding Mix
10 Domestic debt – We expect Angola will rely on a mixture of
9 External commercial debt funding sources, including existing Chinese
lenders, external debt markets, and domestic
External bilateral/multilateral debt
8 banks.
7 Committed external facilities* – The government intends to issue Eurobonds
in 2022 to partly finance a $1.5 billion bond
6
maturing in 2025.
Bil. $
5 – Domestic banks already have high exposure
to the government at 30% of total assets,
4
limiting additional room to lend.
3 – We note that there is an external financing
2
gap of $2.5 billion in 2024 between
committed loan facilities and debt
1 repayments. However, we expect the
government to close this gap over the next
0
2022 2023 2024 2025
one to two years.
*As of December 2021. Sources: Angola Ministry of Finance, S&P Global Ratings.
7Fallout From Rising Global Interest Rates A Growing Risk
– Emerging markets most reliant on external financing are vulnerable to volatile capital flows and fragile investor sentiment.
– The overall impact on each country will depend on many factors, including their policy response. Banco Nacional de Angola began its
monetary tightening cycle in 2021. However, inflation remains elevated and real interest rates are negative.
– That said, foreign exchange reserves of about $15.4 billion provide some cushion against immediate liquidity constraints.
Angola’s Debt Stock And Non-Resident Holdings Of Debt Are Relatively High Compared to Several Peers In Africa
450 90 Total debt
84 stock 2020
400 78 78 80
75 72 72 70
350 71 70
64 64 67 Total debt
300 59 60 stock 2021
55
250 50 50
Bil. $
%
200 40 Non-resident
150 30 30 holdings 2021
28
24 (right scale)
100 20
12 15
50 10
0 1 0 0
Benin
Botswana
Egypt
DR Congo
Angola
South Africa
Nigeria
Cameroon
Uganda
Burkina Faso
Ghana
Mozambique
Rwanda
Togo
Kenya
Congo-Brazzaville
Morocco
Zambia
Ethiopia
Senegal
Cape Verde
Source: S&P Global Ratings.
8Selected Indicators For Key Peers
Congo-
Angola Nigeria Ghana Egypt Kenya Brazzaville Uganda Iraq Pakistan
Vaccination rate,
15% 3% 10% 27% 12% 11% 5% 16% 40%
mid-February 2022
Barrels of oil
produced (million 1.13 1.31 0.50 N/A N/A 0.27 N/A 3.97 N/A
barrels/day), 2021
$ £ Total external
65% 22% 73% 38% 48% 107% 42% 45% 40%
¥ € debt/GDP, 2022
Chinese debt/total
¥ government
external debt, 2019
40% 11% 7% 4% 23% 61% 22% N/A 27%
Average borrowing
6.9% 10.0% 11.2% 11.0% 7.7% 1.9% 6.9% 3.3% 7.8%
cost, 2021-2024
N/A--Not applicable. Sources: S&P Global Ratings, Our World In Data, OPEC Monthly Oil Market Report, SAIS-China Africa Research Initiative.
9Related Research
– Sovereign Ratings History, Feb. 7, 2022
– Sovereign Ratings List, Feb. 7, 2022
– Research Update: Angola Upgraded To 'B-/B' On Improved Debt Metrics; Outlook Stable, Feb. 4, 2022
– EMEA Emerging Markets Sovereign Rating Trends 2022: Stable Overall But Fiscal, External, And Geopolitical Risks
Predominate, Jan. 27, 2022
– Global Sovereign Rating Trends 2022: Despite Stabilization, The Pandemic Threatens The Recovery, Jan. 27, 2022
– S&P Global Ratings Revises Oil And Natural Gas Price Assumptions For 2022-2024, Jan. 20, 2022
– Sovereign Risk Indicators, Dec. 13, 2021. An interactive version is also available at www.spratings.com/sri
– Sub-Saharan Africa's Demographic Transition: A Window Of Opportunity For Growth, Aug. 4, 2021
10Analytical Contacts
Zahabia Saleem Gupta Ravi Bhatia
Associate Director – Sovereign Ratings Director – Sovereign Ratings
zahabia.gupta@spglobal.com ravi.bhatia@spglobal.com
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