"The revision of the 'outlook' of Angola from Positive to Stable reflects the forecasts of lower economic growth, higher inflation and an increase in the ratio of debt to Gross Domestic Product (GDP) as a result of the strong depreciation of the kwanza", reads in the note that also explains the decision to maintain the 'rating' at B-.
Fitch Ratings reduced the growth forecast to 1.5 percent of GDP this year, 2 percent next year, compared to the 3.1 percent recorded in 2022, also estimating that inflation will rise from 14.7 percent, at the end of this year, to 17.1 percent in 2024, when until now it was expected that next year prices would grow to just single digits.
"Weaker economic growth reflects lower oil production compared to 2022, which we forecast will drop to an average of 1.09 million barrels per day this and next year, compared to 1.14 million barrels per day last year ", explains Fitch.
In the note, analysts also estimate that the kwanza, which lost 30 percent of its value against the dollar in the first half, will reach the end of the year worth 760 kwanzas per dollar, compared to 504 kwanzas per dollar at the end of 2022, "but a greater depreciation is possible if the internal supply remains limited", they warn.
Regarding the public debt ratio, which is strongly linked to the evolution of the currency, Fitch Ratings predicts that Angola will miss its targets, reaching the end of this period with a debt of 78.9 percent of GDP, growing from 65.2 percent registered in 2022.
"This mainly reflects the devaluation of the kwanza, since 71 percent of the total debt volume is denominated in foreign currency", they explain, predicting that a strong nominal GDP growth next year will sustain a decline in the ratio to 69.9 percent in 2024.
"This contrasts with our previous forecast of a decline in the debt trajectory, to 58 percent and 54.5 percent in 2023 and 2024", they point out.
In addition to lowering the forecast for the evolution of the economy to Stable, which means that Angola should not see an improvement in its rating in the next 12 to 18 months, remaining at B-, that is, below the investment recommendation, Fitch Ratings announced also decided to maintain the sovereign credit quality assessment at the current level: B- for issues in foreign currency, and B- for issues in local currency.
"The maintenance of the rating balances a set of weak governance indicators, high inflation and one of the highest levels of dependence on raw materials among the countries analyzed by Fitch, with a higher level of external reserves compared to its peers and manageable risks in payments of debt due to the favorable price of oil, which we expect to be between 80 and 75 dollars this and next year", conclude the analysts.
