The devaluation of the kwanza has caused the ratio of public debt to Gross Domestic Product (GDP) to rise 30 points since the beginning of the year, to more than 90%, according to the economic studies office of Banco de Fomento Angola (BFA). It is yet another proof of the economic and financial eruditeness of the MPLA experts.
In its weekly analysis of the Angolan economy, BFA states that “Angola’s public debt will have risen to close to 91.8% of GDP, an increase of 30 percentage points that was due exclusively to the effect of the loss in value of the Kwanza”.
BFA data show that external debt stood at close to 50.3 billion dollars (46.9 billion euros) in the second quarter of the year, minus 1.5 billion dollars (1.4 billion of euros) compared to the previous twelve months, being at the lowest value since the second quarter of 2020, add BFA analysts.
Even so, they add, “looking at the debt as a whole, the estimate points to a value of around 65.5 billion dollars (60 billion euros), a significant drop in the value in dollars, resulting from the decline in external debt in amount, and due to the effect of depreciation on the value of internal debt when measured in dollars”.
The devaluation of the kwanza since the beginning of the year, but with particular incidence from the second quarter onwards, when the Government implemented the partial withdrawal of fuel subsidies, motivated this increase in external debt, since a cheaper national currency is equivalent to paying the higher debt.
Regarding the decomposition of Angola’s external debt, BFA highlights that “debt owed to Chinese entities represents 38% of all public debt abroad, a very relevant weight, but which has been falling, and is now at minimum levels since the first quarter 2016”.
On the contrary, they add, “debt to multilateral entities now represents 17.5% of all debt abroad, a historic maximum since the beginning of the statistical series, in 2013”, which shows the Government’s efforts to encourage the diversification of financing source.
BFA’s analysis comes a few days after the first assessment by the Executive Board of the International Monetary Fund (IMF) after the financial assistance program, in which it revised downwards the growth forecast for Angola’s economy, from 3.5% to 0. 9% this year.
The decline in the oil sector, the main pillar of the Angolan economy, contributed to this downward revision, with a decline of 6.1% (a growth of 2% was expected in the February forecasts), while the growth of the non-oil sector to 3 .4% (it was 4.3% in February) cannot compensate.
The IMF Executive Board highlights that the successful reforms associated with oil prices supported Angola’s economic recovery between 2021-22, but the decline in oil production (from 1.205 million barrels per day forecast in February, to 1.026 million of barrels per day) brings “significant challenges”.
The IMF also predicts that the public debt to GDP ratio, which is one of the five main indicators for assessing a country’s debt sustainability, will rise from 65.2% in 2022 to 83.2% this year, before slowing down later. to 75.6% in 2024, still above the average for sub-Saharan African countries, around 60% of GDP.
Public debt measures the indebtedness of a country’s public administrations. In the States of Law, such as Portugal, for example, public administrations comprise:
– Central administration – State administrative services and other central bodies whose competence concerns the entire economic territory;
– Regional administration – regional government bodies and autonomous services and funds of the autonomous regions;
– Local administration, including local administration bodies at the level of districts, municipalities and parishes;
– Social Security Funds.
Public administrations do not include companies that operate under market conditions, whether financial (example: Caixa Geral de Depósitos, SA) or non-financial (example: EPAL-Empresa Portuguesa das Águas Livres, SA).
There are several ways to measure public debt. In Portugal, and in other European Union countries, a harmonized definition is used, which is often called “Maastricht debt”.
According to this definition, public debt corresponds to the contractually agreed amount for which public administrations will have to reimburse creditors on the due date.
It encompasses liabilities in deposits and similar deposits made with public administrations (such as savings or Treasury certificates), debt securities issued (highlighting, among others, bonds and Treasury bills) and loans obtained by these entities.
According to the harmonized definition, public debt does not include some financial instruments, namely financial derivatives and other debts (which include commercial debts).
Public debt is compiled on a consolidated basis, meaning it does not include debts of public administration entities that are held by other public administration entities.
According to Carlos Rosado de Carvalho, “one of the problems we have is that we are now starting to pay the public debt service again, which had been suspended”. The payment of the public debt “is nothing new, because we already knew when we were going to resume paying the debt, and what the Government did was spend everything instead of preparing for the resumption of debt payment”.
In Africa, public debt and inflation are at levels that have not been seen for decades, with double-digit inflation in half of the countries – which reduces families’ purchasing power and severely harms the most vulnerable.
It is therefore important to consolidate public finances and strengthen public financial management in a context of difficult financing conditions. To achieve this, authorities should continue to mobilize public revenues, improve budgetary risk management and manage debt more proactively. For countries that need to recast or restructure debt, it is imperative that they develop an effective debt resolution framework to create fiscal space.
Sheet 8 with Lusa