BFA Asset Management on Angola’s annual budget outlook

Angola, the third-largest economy in the Sub-Saharan Africa region, is facing significant challenges due to the impact of the COVID-19 pandemic and the volatility in oil prices. In a recent interview on CNBC Africa, Rui Oliveira, the CEO at BFA Asset Management, discussed the implications of Chinese debt relief for emerging markets like Angola and Mozambique, as well as the outlook for Angola's annual budget. Angola, known as the second-largest oil exporter in the region, has seen a drastic decrease in its oil production over the years. From exporting 1.7 to 2 million barrels per day in 2016, the country is now predicted to export around 1.2 million barrels per day, resulting in a significant blow to its economy. This decline in oil production has led to a budget revision, with the state reducing its oil price estimate from $35 per barrel to $33, causing an estimated 15% reduction in the country's initial budget. This adjustment is expected to result in a revised budget of approximately $24 to $25 billion for 2020. The combination of reduced spending, declining oil production, increasing debt obligations, and the impact of the COVID-19 pandemic has created immense pressure on Angola's economy. Angola's external debt currently stands at around $28 billion, with Chinese lenders accounting for 45% of the total debt. Negotiating debt relief with China poses a significant challenge for Angola, as any relief obtained may affect the country's oil sector by potentially allowing Chinese lenders to expand their market share in oil production. In addition to external debt, Angola has implemented a quantitative easing program amounting to approximately $100 billion in debt buying. Since its announcement in April, the program has executed around $79 billion in debt buying, indicating a significant effort to address internal debt challenges. Despite these measures, the road to economic recovery appears long and challenging for Angola. The International Monetary Fund (IMF) recently revised its growth expectations for Angola, projecting a 4% recession in 2020, marking the fifth consecutive year of contraction for the country. Oliveira expressed a bleak outlook for 2020, foreseeing a year of continued economic pain rather than recovery. He suggested that a potential turnaround could occur in mid-2021, with the IMF expecting a 3.2% growth in Angola's economy. However, the actual recovery timeline may vary depending on oil price fluctuations and market conditions. In conclusion, Angola faces a complex economic landscape characterized by dwindling oil production, escalating debt burdens, and the adverse effects of the COVID-19 pandemic. Navigating these challenges will require strategic planning, effective debt management, and a cautious approach to external partnerships, particularly with Chinese lenders.