Ver Angola

Economy

Fitch Solutions: Kwanza to drop 30 percent this year following trend in Africa

Consultant Fitch Solutions warned that the covid-19 pandemic will put pressure on African currencies, pointing to the cases of South Africa, Angola and Mozambique as some of the currencies most vulnerable to falls.

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"The South African rand is particularly vulnerable, as it is linked to risk aversion in emerging markets, but the currencies of Angola, Botswana and Mozambique will also be affected," write analysts, predicting a drop of more than 30 percent in the kwanza value.

In a note on the evolution of national currencies in some African economies this year, analysts of this consultancy owned by the same owners of the rating agency Fitch consider that "the high risk aversion following the covid-19 will lead to strong demand for dollar and an increase in capital flight due to high inflation and weak metrics in the economies, which leads to more weak currencies ".

The metical fell nearly 8 percent against the dollar this year and is expected to "face further pressure this year due to rising inflation due to the impact of food prices following last year's bad weather," notes Fitch Solutions, warning that "the falling interest rates to 11.25 percent in April undermines the attractiveness of the metical ".

Regarding Angola, the consultants say that, following the drop of 14.4 percent in the value of the kwanza against the dollar this year, "the decline should continue due to the reduced inflow of dollars in a context of low oil prices, which will weigh even more on the kwanza exchange rate and the volume of foreign reserves ".

Even so, they note, the drop should not be as pronounced as in 2018 and in the second half of last year, after the Government abandoned the benchmark value of 167 kwanzas per dollar in the scope of economic reforms to attract foreign investment, allowing a 52.4 percent drop in the kwanza in 2018.

"We expect the kwanza to fall 31.2 percent this year, to an average of 530.4 kwanzas per dollar, compared to $ 364.8 in 2019, with the central bank trying to ease the pace of depreciation" , note the analysts, who call attention to the effects of this drop in the debt burden.

"A depreciated kwanza will make the payment of the external public debt, which we estimate to have stood at 47.4 percent of GDP in 2019, more expensive for the Government, which will encourage the National Bank of Angola to limit currency depreciation during this year ", conclude the analysts.

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