Moody's downgrades Angola's ratings to B2, outlook stable

Moody's Investors Service recently downgraded Angola's long-term issuer and senior unsecured ratings to B2 from B1, while changing the outlook to stable from negative. This decision was accompanied by a lowering of Angola's foreign currency bond ceiling to B1 from Ba3. Lucie Villa, Vice President and Sovereign Analyst at Moody's Investor Services, discussed the implications of these changes in an interview with CNBC Africa. One of the key issues highlighted was Angola's failure to diversify its economy away from oil fast enough, leading to significant vulnerability when oil prices fluctuate. Villa noted that diversification efforts take time and while there is some progress, it is unlikely to have a significant impact on the economy in the mid-term, given the long-term nature of such shifts. The recent decrease in oil prices in 2015 and 2016 has negatively impacted Angola's fiscal strength, raising concerns about the country's debt levels. Angolan fiscal position could potentially benefit from an oil price recovery, with Villa mentioning that Moody's focus is on the band of $40 to $60 per barrel. However, even if oil prices were to increase to $60 per barrel in 2018, the positive impact on Angola's fiscal position would be counteracted by the expected devaluation of the currency. With 78% of the government debt denominated or indexed to the dollar, any devaluation would have significant implications for the country's debt. Moody's anticipates a 70% devaluation by the end of 2018, with this expectation already factored into their current rating. While a stronger devaluation could lead to reassessment, the current outlook incorporates this potential risk. Additionally, Villa discussed Angola's monetary policy, highlighting the central bank's decision to maintain the key repo rate at around 16% in January. Moody's expects inflation to decrease to below 25% by the end of 2017, with a gradual downward trend continuing in 2018. Villa emphasized the importance of this trend in inflation rates, noting that a sustained decrease is crucial for the country's economic stability. The composition and behavior of inflation rates are also key considerations for Moody's in assessing Angola's economic outlook. Despite the challenges posed by oil dependency and currency devaluation, Villa remains cautiously optimistic about Angola's prospects, indicating that the country's ability to address these issues will be critical in determining its creditworthiness in the future.