LUANDA, Jan 4 (Reuters) – It was Angola’s depleting foreign reserves that prompted the central bank to pursue a more flexible exchange rate strategy, the regulator said on Thursday.

The comment came a day after plans were unveiled to restructure foreign debt and allow looser trading of the kwanza.

The central bank said on Wednesday it would shift from a currency peg to a trading band, which would keep the kwanza’s value against the U.S. dollar within an as-yet defined range.

The changes will be implemented from this month.

Kaan Nazli, senior economist at investment management firm Neuberger Berman, estimated the new currency plan could result in the kwanza effectively devaluing by 30 percent.

“Of course they won’t call it like a devaluation … but ultimately it is not too far off what the (International Monetary Fund) has identified as the overvaluation of the exchange rate,” Nazli told Reuters.

Sub-Saharan Africa’s third largest economy also plans to renegotiate its external debt, which stands at $38 billion, Finance Minister Archer Mangueira said on Wednesday.

Angola’s dollar-denominated bond, which has $1.5 billion outstanding and matures in November 2025, fell 0.2 cents in price to 115.80 cents.

Most of Angola’s external debt is held by multinational lenders like the IMF or by foreign governments, including China, which has huge oil-for-infrastructure deals with the southern African nation.

Angola does not have a developed debt or stock market so a more flexible exchange rate is less significant for investors than in more developed markets. Lenders like the IMF have been calling for looser currency controls, however.

“Multilateral lenders will look favourably on the developments, so they might be more willing to restructure some of the debt,” said Cobus de Hart, analyst at NKC African Economics.

The central bank said in a statement on Thursday its decision to ease currency controls came after it had analysed the “macroeconomic fundamentals of the Angolan economy, and particularly the decreasing trend of international reserves”.

The regulator has been trying to defend the currency using foreign exchange reserves, but reserves have more than halved since 2013 to about $14 billion.

Oil accounts for around 90 percent of Angola’s government revenue and years of depressed crude prices have hammered once booming economic growth and eroded foreign currency reserves.

Angola, Africa’s second biggest oil exporter, has maintained a quasi-pegged exchange rate of about 166 kwanza per dollar, even though the dollar buys about 400 kwanza on a thriving black market.

Under the new system, forex trading will be carried out at trading auctions where a weighted average of offers from the central bank and commercial banks will set the exchange rate.

“In other words, the exchange rate is now determined by the transactions that take place in the primary market by auction,” the central bank said. (Reporting by Herculano Coroado; Additional reporting by Tiisetso Motsoeneng and Ed Stoddard in Johannesburg and Karin Strohecker in London; Writing by Joe Brock; Editing by Catherine Evans/Jeremy Gaunt)