"The downgrading of the rating reflects the significant increase in public debt, the reduced flexibility of external financing, as is evident in the strong rise in debt interest rates, and the decreasing external liquidity," says Fitch Rating in its explanation of the rating action, which comes less than six months after the last downward revision in March.
"Public debt sustainability has worsened and the weakened public finances will inhibit the authorities from significantly lowering the level of debt over the next two years," they argue, predicting that by the end of this year the ratio of debt to GDP will rise to 129 percent, which represents "850 percent of government revenues, more than double the average for B-rated countries, with 356 percent, and is indicative of Angola's difficulties in increasing non-oil revenues".
For the analysts of this rating agency, owned by the same owners as Fitch Solutions, "the combination of low oil prices and cuts in production due to the agreement with the Organization of Petroleum Exporting Countries will lower oil revenues by 3 to 4 percentage points of GDP compared to 2019," causing the cost of servicing the debt to rise to 48.3 percent of total revenue, more than three times the average for the countries to which Fitch gives the B rating.
Even predicting an increase in the deficit from 3.5 percent in 2019 to 4.3 percent this year, Fitch Ratings estimates that the figure will improve in coming years with the recovery in oil prices and the new fiscal measures adopted by the government of João Lourenço, "but the unfavourable dynamics of debt will keep the debt burden high," above 120 percent by 2022.
The cost of servicing Angola's public debt is expected to approach 7 billion dollars, or 12.3 percent of GDP, this year, but 2.5 billion dollars in bilateral debt is expected to be restructured, following the agreement reached with the Paris Club, which will serve as an example to other official creditors, namely China, which holds more than 40 percent of the country's external debt, Fitch Ratings adds.
The remaining 4.4 billion dollars is to be paid "through a combination of multilateral loans, recourse to the sovereign fund and foreign reserves".
Thus, they conclude, "the country should be able to guarantee its external financing needs this year, but the overall external position of Angola's economy will continue to weaken, which increases the risk of a financial default event in coming years".
