New York, March 31, 2020 -- Moody's Investors Service ("Moody's") has today
placed Angola Government's B3 long-term issuer ratings and senior
unsecured rating and its (P)B3 senior unsecured MTN rating under review
for downgrade. The short-term issuer rating is affirmed
at Not Prime (NP).
The decision to place Angola's ratings on review for downgrade is
prompted by the magnitude of the shock from the sharp drop in oil prices
and an acute tightening in global financing conditions on Angola's
already weak public finances and external position, and elevated
government gross borrowing requirements. Weak governance,
notwithstanding a number of reforms implemented in recent years,
undermines the government's capacity to respond to this shock and
is a driver of this rating action.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. For Angola, the
shock mainly transmits through a further weakening in the currency that
raises the debt burden and debt service; a significant drop in revenues
that is likely to prevent the government from pursuing its debt management
strategy of paying down short-term debt and reducing rollover risk;
and pressure on an already fragile balance of payments.
The review period will allow Moody's to assess the overall policy
response to the shock and the capacity of the authorities to manage:
1) the additional stress on public finances and the government's
balance sheet driven by the significant loss of oil-related revenues
and a potential further depreciation of the currency; 2) the severity
of the increase in external vulnerability given the expected sharp drop
in oil export receipts putting pressure on foreign currency reserves;
3) the rising risks associated to large domestic and external debt service
payments in a currently dislocated credit market.
Concurrently, all Angola's country risk ceilings remain unchanged:
Foreign Currency bond ceiling at B2, Foreign Currency deposit ceiling
at Caa1, and Local Currency bond and deposit ceilings at Ba3.
RATINGS RATIONALE
RATIONALE FOR INITIATING A REVIEW FOR DOWNGRADE ON ANGOLA'S B3 RATINGS
As a result of the oil price fall in the face of depressed oil demand
and a slow supply response, Moody's now assumes that oil prices
will average US$40-45 per barrel in 2020, and US$50-55
by 2021, around $20 and $10 below previous expectations
in each year.
As a large oil exporter, Angola heavily relies on the oil sector
as a source of government revenue (62% of total revenue in 2019)
and exports (96%). Such a fall in oil prices heightens the
pressure on Angola's already weak fiscal and external metrics.
ANGOLA'S WEAK CREDIT METRICS ARE LIKELY TO DETERIORATE FURTHER,
TO AN EXTENT PARTLY DETERMINED BY THE GOVERNMENT'S CAPACITY TO RESPOND
Angola's credit profile is weakened by the oil price shock which
negatively affects the government's balance sheet and the country's
external position, through a significant loss of government revenue
and export proceeds respectively. Also, the Covid-19
related spending to prevent the spread of the virus throughout the country
is expected to further aggravate the fiscal deficit.
Already, Angola's fiscal and external metrics are very weak.
General government debt increased to an estimated 100.5%
of GDP in 2019, from 81% in 2018, and debt-to-revenue
was around 500% from 371% respectively. Similarly
interest payment-to-revenue exceeded 25% in 2019
against 20.7% a year before. On the external side,
vulnerability relates to low net foreign exchange reserves at $11.8
billion at the end of 2019, covering around 6 months of imports
of goods and services and external debt amounting to about twice the level
of current account receipts this year, according to Moody's
estimates.
Angola is unlikely to be able to significantly increase its oil production
that has been in a secular decline for the last 4 years to offset the
price drop. Moody's estimates that a $10/barrel decrease
in oil price leads to a $2-$2.5 billion loss
in government revenue (around 3% of 2019 GDP) and a $5 billion
fall in exports receipts.
The 2020 budget which was designed to post a small surplus (0.8%
of GDP), was passed with a $55/barrel oil price assumption.
It would have contributed to a slightly positive balance of payments after
International Financial Institutions' (IFIs) disbursements of concessional
loans. As a result of the price fall, Angola's fiscal
and external accounts will be in deficit, raising pressure on the
exchange rate and foreign exchange reserves and incentivizing economic
transactions in the parallel exchange rate market.
A budget no longer likely to be in surplus and further pressure on the
currency are likely to raise the already very high debt burden.
In turn, the government's borrowing requirements are likely
to increase again in 2020 having fallen to 15% of GDP in 2019 (including
clearance of arrears to goods and services suppliers), at a time
when international and possibly domestic financing comes at very high
costs. Given the current dislocation in credit markets, it
will be increasingly challenging for the government to secure financing
at affordable costs. Previous objectives, including an ongoing
debt management strategy aimed at repaying short-term debt and
lengthening its debt maturity and the maintenance of net international
reserves above $10 billion have also become far less achievable.
The impact of the oil price shock will be attenuated by the fact that
the government posted a small deficit on the budget estimated at 0.3%
of GDP and a current account surplus estimated at 4% of GDP in
2019. This is due to the implementation of a vast array of reforms,
and strong consolidation efforts under the $3.7 billion
and 3-year IMF program, approved in December 2018.
But during this transition period, where the authorities,
with the support of the IFIs, are trying to spur the private sector,
restore macroeconomic stability with a more flexible exchange rate and
sounder public finances, having cleared large amount of arrears
and improved the debt structure, Angola's credit metrics remain
highly vulnerable to shocks.
The review period, which may extend beyond the usual three-month
horizon, will allow Moody's to assess the credibility and sustainability
of the government's plans and its ability to mitigate the impact
of significantly lower oil prices on Angola's credit standing.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental considerations are not material for Angola's rating.
As an oil producer and exporter, Angola's environmental risks derive
from carbon transition. Angola's credit profile would face downward
pressure in a scenario of rapid global transition to lower reliance on
hydrocarbons that would depress global hydrocarbon demand and prices.
However, in light of the measures against climate change taken so
far, this is not Moody's baseline.
Social considerations influence Angola's credit profile, given very
low wealth levels and high levels of poverty. GDP per capita,
at $6,851 on a PPP basis as of 2018, remains low.
Additionally, the UN's Human Development Index for 2018 ranked
Angola 147 out of 189 countries. Social indicators have improved
from a very low level since the end of the civil war in 2002, but
income inequalities remain very high despite the oil wealth of the country.
Since the oil shock and the election of President Lourenco, the
authorities have been implementing an ambitious reform agenda despite
the political cost and inherent execution risks. Risk of social
unrest remains, especially stemming from jobless young people.
Governance considerations are material to Angola's credit profile and
are a driver of this action. Data transparency and availability
are areas of improvements, as well as institutional capacities that
remain limited. For example, Angolan banks lost their dollar-correspondent
banking relationships in 2016 because of their failure to meet international
standards relating to shareholder structures and money laundering,
resulting in increased transaction costs and delays. There are
also significant weaknesses related to the management of public finance,
illustrated by the level of arrears accumulated over the last few years.
FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING
Moody's would downgrade the rating if the review were to conclude that
Angola's government was unlikely to be able to alleviate the damage to
its balance sheet and the subsequent rise in liquidity risk resulting
in a credit profile no longer consistent with a B3 rating. Increasing
risks of a balance-of-payment crisis would also likely lead
to a downgrade.
WHAT COULD LEAD TO CONFIRMATION OF THE RATING AT THE CURRENT LEVEL
Moody's would confirm the rating if the review were to conclude that a
credible fiscal and economic policy response from the government will
efficiently manage the risks arising from the upward trend in government
debt, government liquidity risks, and increased pressure on
the exchange rate, leaving Angola's credit profile consistent with
a B3 rating.
GDP per capita (PPP basis, US$): 6,851 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -1.2% (2018
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 18.6%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: 2.2%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 7% (2018 Actual) (also known
as External Balance)
External debt/GDP: 44.4% (2018 Actual)
Economic resiliency: b2
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 26 March 2020, a rating committee was called to discuss the rating
of Angola, Government of. The main points raised during the
discussion were: The issuer's economic fundamentals, including
its economic strength, have materially decreased. The issuer's
fiscal or financial strength, including its debt profile,
has materially decreased. The issuer's susceptibility to
event risks has not materially changed.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
The local market analyst for this rating is Aurelien Mali, +971
(423) 795-37.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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support provider and in relation to each particular credit rating action
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rating assigned, and in relation to a definitive rating that may
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
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review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
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am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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for additional regulatory disclosures for each credit rating.
Samar Maziad
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
