Ver Angola

Economy

Fitch forecasts four percent recession and inflation to rise 24 percent in Angola this year

Rating agency Fitch forecasts a four percent recession in Angola and a rise in inflation to 24 percent, with oil production falling to 1.3 million barrels per day this year and next.

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"Angola's economy continues to be limited by the high level of dependence on raw materials, which contributes to low growth and marked macroeconomic instability," reads the report accompanying the announcement of the downgrade to CCC, indicating a real possibility of financial default.

"The contraction in the oil sector, combined with the lack of liquidity in dollars, will keep Angola in the fifth consecutive year of recession, with a contraction of four percent and an acceleration of inflation to 24 percent this year, well above the average for countries with a B rating of 4.8 percent," the text adds.

On oil production, Angola's main export raw material and essential for balancing public finances, Fitch Ratings admits that "reforms in the hydrocarbon sector can help to stabilize the long-term decline in production," but notes that after production of 1.4 million barrels per day in the first half, there was a drop following the implementation of cuts agreed with the Organization of Petroleum Exporting Countries.

"Fitch Ratings forecasts that production will average 1.3 million barrels per day in 2020, and that it will be more or less at the same level in 2021," the analysts say.

About Angolan banks, the outlook is not positive either: "Angolan banks will face more economic challenges as the shock of the covid-19 pandemic prolongs the recession in Angola," they warn.

Despite the measures taken by the authorities, among which Fitch highlights the implementation of credit support programs for small and medium enterprises and the lowering of some rates, the government's use of the domestic debt market will harm the private sector.

"We expect private sector credit growth to contract this year, and already low-quality assets are likely to continue to weaken, reflecting the high level of exposure to the hydrocarbon sector," the analysts conclude.

Fitch Ratings downgraded Angola's rating to CCC this Friday, indicating that there is a real possibility of financial default due to the significant increase in public debt and deterioration in public finances.

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