"Higher oil prices and our expectation of a continued budgetary restriction will sustain an improvement in the outlook for fiscal developments", reads the note accompanying the explanation of the change in the outlook for the evolution of the rating, which is kept at B-, below the investment recommendation level.
In the note, Fitch Ratings, owned by the same owners of the consultancy Fitch Solutions, forecasts a budget surplus of 4.3 percent this year, and a significant reduction in the public debt-to-GDP ratio, which will fall to 56.5 percent this year, compared to 79.7 percent last year and 123.8 percent in 2020.
"We anticipate that this decline in the ratio will be supported by the significant appreciation of the kwanza, by a substantially higher nominal GDP and by the continued commitment to fiscal consolidation", write the analysts, noting that "the previous depreciation was an important driver of the increase in debt in recent years, as foreign currency debt represents 70 percent of total public debt".
In its analysis of Angola's public finances, Fitch Ratings warns that if oil prices fall, the pressure on government accounts will increase again.
"Debt service remains highly sensitive to movements in the kwanza because of the significant amount of debt in foreign currency", they warn, adding that "debt interest payments are expected to decline to 15.7 percent of revenues this year, improving against at 22.2 percent from 2021", and the agreements with Chinese banks "will keep public debt amortization costs high, at around 5.5 billion dollars a year between 2023 and 2025".
After five years of economic recession, Angola is expected to grow 2.8 percent this year and 3.4 percent in 2023, "driven mainly by the non-oil sector, reflecting the easing of restrictions related to the pandemic and the increase in liquidity of dollars, in addition to a significant improvement in economic sentiment", conclude the analysts.
Placing a rating on a Positive Evolutionary Outlook means that, if current conditions are maintained or improved, the rating will be revised upwards, normally within a period of between six and 18 months, but which can be brought forward.
Fitch Ratings assigns Angola an opinion on sovereign credit quality at B-, below investment recommendation, ie 'junk' as it is generally known, meaning that investing in this country is risky.
"The B rating indicates that there is a material risk of financial default (default), but there is a limited safety margin; financial commitments are being met, but the ability to maintain payments is vulnerable to deteriorating economic and business conditions" , as defined by Fitch Ratings for level B.