"We expect debt interest to rise to 30 percent of tax revenue by 2027, from 23.8 percent at the end of 2023, due to the 'higher for longer' interest rate environment," the analysts write in the note that accompanies the explanation of the maintenance of Angola's rating at B-.
In the analysis, S&P says that "although vulnerabilities remain pressing, Government debt will fall from almost 90 percent last year to 76 percent at the end of 2027, due to budgetary consolidation and the fact that the increase in inflation results in GDP growth that outpaces debt accumulation.
S&P notes that almost half (48 percent) of external debt payments this year and next will be made to China, through payments with oil as collateral, "and therefore a considerable part of the Government's oil revenues will continue to be awarded to payments to Chinese creditors, which further weighs on budgetary flexibility".
Total commercial debt payments will reach 4.4 billion this year (4 billion euros), of which 800 million dollars (742 million euros) relate to commercial debt securities issued in foreign currency (Eurobonds), but will increase to 5.1 billion dollars (4.7 billion euros) in 2025, of which 1.66 billion dollars, around 1.54 billion euros, relate to Eurobonds.
Bilateral and multilateral debt payments "are more modest, reaching 1.3 and 1.6 billion dollars [1.2 and 1.4 billion euros], respectively, in the same period".
Despite the high values for this Portuguese-speaking economy, which is the second largest oil producer in sub-Saharan Africa, S&P says that "the Government is proactively managing its debt payment obligations, and has sufficient resources to pay its debt profile over the next three years, provided there are no further adverse shocks".
Among the measures implemented to guarantee compliance with financial obligations and remove the specter of default that some analysts say still looms in Angola, S&P lists the imposition of taxes on international transactions, the priority given to channeling foreign currency to pay debt and the currency reserve to pay the loans that have oil as collateral.
"The Government already has 2.5 billion dollars [2.3 billion euros] in accounts reserved to pay Chinese creditors, 3.3 billion dollars [3 billion euros] in liquid assets in accounts local banks, and 1.6 billion dollars [1.4 billion euros] in net assets from the Angolan Sovereign Fund, and is also engaging with international banks to define financing mechanisms for up to 1.5 thousand million dollars [almost 1.4 billion euros] in future payments", says S&P.
Regarding the possibility of Angola returning to international markets to issue debt, S&P says that "the easing of monetary policy at a global level and the consequent reduction in financing costs in international markets could lead Angola to enter foreign markets, but the cost of financing will likely be higher than in recent years, as interest rates are likely to remain higher for longer."
In the note that maintains the 'rating' at B- and the 'outlook', S&P says that the prospect of stable evolution balances the large external financing needs and financing risks in the next 12 months, with positive oil prices and relatively stable reserves, and points out that the credibility of sovereign credit and economic stability are "highly dependent" on a positive environment in the sector and production that remains above 1 million barrels per day.
Reforms to reduce oil dependence "have made slow progress", with the Government taking "significant policy steps in recent years to reduce economic imbalances, manage upcoming debt payments and improve non-oil domestic production, but successive external shocks and merely marginal improvements in non-oil production capacity prevented significant diversification", concludes S&P.
