Angola’s Credit Rating Downgraded by S&P After Oil Price Drop, Stable Outlook

Luanda, Angola, Capital Markets in Africa — Standard & Poor’s Ratings Services lowered its long-term foreign and local currency sovereign credit ratings on the Republic of Angola to ‘B+/B’ from ‘BB-/B’ with stable outlook.  Also, S&P  lowered Angola’s transfer and convertibility assessment to ‘B+’ from ‘BB-‘.

Standard & Poor’s downgraded Angola’s credit rating to B after a decline in oil prices curbed government revenue. This downgrade putting the nation’s debt five levels below investment grade.  

“We consider that the lower-than-expected Brent oil price assumptions for 2016-2019 are weakening our projections for Angola’s external stocks and flows and the pace of economic growth given the country’s dependence on the oil sector,” S&P said in a statement.

The rating agency further stressed that: “We therefore expect that Angola’s debt burden will increase substantially in 2015 and over 2015-2018 to finance these deficits, reaching 33% of gross general government debt to GDP, or 20% of GDP on a net basis, in 2016. Government assets remain relatively healthy at an estimated 18% of GDP, including the fully funded $5 billion sovereign wealth fund”.

Also, S&P stated that reduced oil revenues will also pressure Angola’s external accounts, highlighting volatile terms of trade and expected Angola’s current account to turn to a deficit of approximately 7% of GDP in 2015, from a surplus that averaged 8% of GDP over 2011-2014.The stable outlook on Angola reflects the substantial fiscal and external buffers available to the government and monetary authorities to control the impact of a prolonged decline in oil prices over the next year, S&P stated.  

In addition, S&P highlighted and stated “We could change the outlook to negative if the overall balance of payments turns worse than we currently expect. Deterioration in the political or institutional environment could also result in a downgrade”.  On the other hand,  material economic diversification, higher-than-expected potential growth, substantially improved institutional capacity and transparency, or significantly higher fiscal or monetary flexibility could lead us to consider a positive rating action, S&P stated.

Angola, Africa’s largest crude producer after Nigeria, relies on the fuel to generate about 70 percent of taxes and 95 percent of export income. As the price of oil plunged, the government slashed its budget spending, cut fuel subsidies and froze hiring. Government spending accounted for more than a third of Angola’s $129 billion gross domestic product in 2014.

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