Moody’s explained that the Southern African country’s rating is mainly attributed to its oil endowment and rising oil production.
This has generated a fiscal surplus for the economy, allowing for capital expenditure to diversify it away from natural resource extraction.
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“As Angola’s oil output expands to roughly 2.1-2.2 million barrels per day by 2016, the growth prospects of its economy will improve,” said Aurelien Mali, senior analyst in Moody’s sovereign group.
“We forecast economic growth of 7.8 per cent in 2014 and 8.4 per cent for Angola in 2015. Such prospects offset, from a credit standpoint, the country’s relatively low per capita income.”
(READ MORE: Angola on the ascent despite ratings change)
The rating is further supported by the strength of Angola’s government balance sheet with debt to gross domestic product (GDP) currently at 23 per cent and gradual growth in its foreign exchange reserves, acting as a buffer against economic shocks.
Moody’s added that constraints Angola’s rating faces however are due to its limited institutional capacity, oil price volatility and uncertainty around political succession and economic policies.
The country is vulnerable to oil shocks as oil breakeven prices have continued to rise from 66 US dollars to 98 US dollars over the last four years.
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Also, the country’s banking system faces risks of elevated non-performing loans as well as a high but falling level of financial dollarisation.
Moody’s therefore proposes that in order to improve its rating, Angola should establish a fiscal stabilisation fund or sovereign wealth fund large enough to protect the government from external economic shocks as well as to build institutional reform.
If not, the Ba2 rating could face a downgrade if government finances deteriorate significantly.