Angola: Doors opened to a strong devaluation

5 min

After the announcement that the peg to the USD will be abandoned, Angola let its currency, the kwanza (AOA), depreciate by -12% on 10 January. Speculative pressures on the exchange rate and debt redemptions have put Angola’s foreign exchange (FX) reserves under pressure. The black market exchange rate is currently above 400 AOA per USD (-58% weaker than the former official rate). The import cover by FX reserves fell to 5.4 months in November from 8 months in January 2017. Public debt increased from 29% of GDP in 2013 to 76% in 2017, and external debt rose from 24% to 45% of GDP. A sensitivity analysis shows that a -20% depreciation of the AOA would raise public debt to 82% and external debt to 52% of GDP. This exchange rate/debt conundrum took its toll on economic growth (-0.7% in 2016 and +1% in 2017) despite fiscal policy support (the fiscal deficit was -7% of GDP in 2017) as credit constraints and high inflation (+32% in 2017) weighed on it.