Angola’s Economy Sees Decline in Chinese Debt Payments Amid Oil Price Drop
Luanda, Angola
According to data released by the central bank, Banco Nacional de Angola (BNA), Angola’s debt payments to Chinese creditors have seen a significant decline. The country’s external debt stands at US$51 billion.
Background
Angola’s economy is heavily reliant on oil exports, which make up 90% of its exports. As a result, the country is vulnerable whenever oil prices fall. In response, Chinese lenders granted a three-year debt payment freeze to Angola, ending in the second quarter of this year. The deal required Angola to resume payments if the price of oil rose above US$60 per barrel.
Economic Analysis
Gerrit van Rooyen, an economist at Oxford Economics Africa, noted that Angola’s decision to accelerate debt repayments while oil prices were high was a prudent step. This move gives the government more spending flexibility now that oil prices have normalized.
Challenges Ahead
However, the country’s economy is expected to face challenges in the coming months due to lower oil prices and slightly lower oil production. This could make it harder for Angola to service its foreign debt.
Breakdown of Chinese Debt Payments
The decline in Chinese debt payments was dominated by a US$1.3 billion drop in debt owed to banks, with debt owed to bilateral creditors falling by US$231 million, according to BNA statistics.
Expert Insights
Mark Bohlund, a senior credit research analyst at REDD Intelligence, stated that debt payments were being accelerated to enable new disbursements for projects such as Caculo Cabaca while maintaining the credit limits set by Sinosure, the Chinese provider of export credit insurance.
Government Plans
Angola’s finance minister has stated that the government will continue to accelerate debt repayments and reduce its reliance on oil revenue. However, experts warn that it will take decades to diversify the economy away from a reliance on oil and Chinese debt.
Infrastructure Projects
The country still needs China to fund major infrastructure projects such as the 2,172 megawatt Caculo-Cabaca hydropower station in the north-central province of Cuanza Norte. The project will be funded by Industrial and Commercial Bank of China (ICBC), while the Lobito oil refinery along the Atlantic coast will be built by China National Chemical Engineering.
Conclusion
The recent drop in the Angolan kwanza (AOA) was a way to protect external debt payments amid lower oil prices, as it reduced government expenditure in US dollar terms. According to Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, the current administration has made up a great deal of ground in bringing Angola’s balance sheet under control and putting the economy on a firmer footing.
New Projects
The government is also investing in new projects, including a US$900 million solar plant and a US$250 million proposal to fund the Lobito Atlantic Railway Corridor – an open access rail line from Lobito Port in Angola to the border with the Democratic Republic of the Congo.