Angola's economy differs from that of many other African nations. It currently has a stronger external profile and, in recent years, has had one of the tightest fiscal positions in Africa. Nevertheless, high foreign currency debt repayments, and dollarization, alongside reliance on oil production and exports expose it to oil price and exchange rate volatility (see "Angola 'B-/B' Ratings Affirmed; Outlook Remains Stable," published Feb. 24, 2024, on RatingsDirect).

Here, S&P Global Ratings addresses key questions from investors on the structure of Angola's economy, the composition of the government's debt, and upcoming debt servicing costs.

Frequently Asked Questions

How does Angola's economy differ to that of other African nations?

In many respects, Angola's economic profile stands out among regional economies. With exports standing at 41% of GDP (compared with 12% of GDP in Kenya), Angola is a relatively open economy that has operated trade and current account surpluses since 2018. A difficult business environment in the oil sector explains the decision by multinational energy companies to repatriate foreign direct investment (FDI), which is a drag on the economy.

However, relative to other African sovereigns, Angola has a stronger external profile. It is a modest net external debtor with a net international investment position estimated at 24% of GDP as of year-end 2023, although this is highly sensitive to fluctuations in exchange rates. Net foreign exchange reserves cover about 4.7 months of current account payments (including imports, dividends, and interest payments to nonresidents), and 65% of short-term external debt by remaining maturity.

How dominant is oil in the Angolan economy, and what does that imply for public finances?

Crude oil makes up 95% of Angola's exports and about 25% of GDP, therefore volatile oil prices and volumes affect the country's terms of trade. The dollar value of Angola's GDP, which was estimated at $88 billion ($2,436 per capita) as of year-end 2023, is down 28% compared with 2017.

Since Angola has a high amount of government debt denominated in foreign currency, and is highly dependent on oil prices, it is exposed to fluctuating terms of trade and exchange rate volatility. This largely explains why its debt burden rose to 90% of GDP in 2023, from 65% of GDP in 2022, after a high of 132% of GDP in 2020 and a low 44% of GDP in 2015. Since 2018, Angola has had one of the tightest fiscal positions in Africa, operating overall general government surpluses for four of the past six years. However, its high debt stock and narrow economy continue to pose fiscal challenges. Additionally, Angola's interest cost, which we forecast to rise to 30% of revenue by 2027, is amongst the highest in our portfolio of rated sovereigns globally.

Are multinational corporations (MNCs) downsizing their operations in Angola?

The repatriation of income related to FDI by multinational oil companies--including energy service companies and contractors--exceeds Angola's investment in new and existing oil fields. This is primarily due to significant barriers to MNCs' local operations and an elevated cost of production, and has reduced oil production to an estimated 1.1 million barrels per day (bpd) in 2023 from a peak of 2.0 million bpd in 2010.

How large is the government's debt and who are the largest creditors?

Angola's general government debt, net of liquid assets, and debt servicing costs are sizeable. It amounted to 81.3% of GDP at year-end 2023, and we forecast this will moderate to 70% by 2027 on gradual fiscal consolidation and improving GDP growth.

China remains Angola's largest creditor, with about 25% of total general government debt owed to China and Chinese state-owned banks. Importantly, we classify debt owed to Chinese state-owned banks as bilateral. Another 23% of debt is owed to external commercial creditors.

Chart 1

Can Angola repay its large external debt when due in 2024 and 2025?

On balance, we expect the government will have sufficient resources to repay its debt according to the redemption profile over the next two years. It is managing its upcoming debt repayments, which should reduce pressure.

However, the government's ability to repay its debts hinges on oil prices remaining above its budget assumption of $65 per barrel, and oil production levels remaining supportive. We forecast oil prices will remain at current levels (averaging $85 per barrel in 2024, falling to $80 per barrel through 2027), while production is likely to remain in the 1.0 million bpd-1.1 million bpd range. Sporadic oil production outages due to aging infrastructure pose a risk to foreign exchange earnings and government revenue.

Most of Angola's debt-service payments in the next few years relate to debts owed to China, particularly oil-backed loans. However, the Angolan government has pre-funded some of these debt repayments. The debt repayment profile remains elevated, with commercial external debt repayments totaling close to $4.5 billion in 2024 and $5.1 billion in 2025. We note a concentration of repayments at the end of each quarter relating to oil-backed loans, and an $864 million principal repayment in November 2025 when an outstanding Eurobond matures.

Chart 2

The Angolan government's decision to increase prepayments on loans to China, over and above existing funds already held in escrow for repayment, will provide some cash flow relief from 2024. Additionally, the amount of general government debt in foreign currency or linked to foreign currency fell by almost $2.4 billion in 2023, due to repayments on external debt, a trend that is likely to continue in 2024 and 2025.

Local currency treasury bills and bonds represent a smaller proportion of overall debt (25.6% of total general government debt) and debt service costs. We estimate local currency debt amortization of Angolan kwanza (AOA) 4.2 trillion ($4.8 billion or 5.8% of GDP) in 2024, and believe this can be refinanced by the local financial sector. However, the local banking sector's exposure to the sovereign is high at 31% of total assets as of year-end 2023, and is rising. Interest costs on local currency debt amount to AOA 1.8 trillion ($2 billion) in 2024 and are likely to remain elevated as the central bank maintains a tight policy to help tame resurging inflation.

The government continues to manage its debt repayments and engage with creditors for additional financing sources. It also maintains liquid assets of $3.3 billion (4.7% of GDP), which it can use for debt-service repayments. These assets are mostly held in local bank accounts and with the central bank, and it also holds $1.6 billion in liquid assets at its sovereign wealth fund (Fundo Soberno de Angola). We estimate the government also holds about $2.5 billion in escrow accounts in China, which are intended to repay Chinese creditors. Furthermore, the government is in discussion with three external banks about liquidity facilities, totaling about $1.5 billion, to further assist in meeting its repayments.

Nevertheless, high debt-servicing costs will keep Angola's reserve-coverage ratio lower than it has been in the last decade. We forecast Angola's foreign exchange reserves will cover an average of 4.4 months of current account payments from 2024-2027, down from an average of 6.6 months over the past decade. This reflects our forecast of increased external financing needs over the next three years.

To what extent could a further exchange rate depreciation exacerbate Angola's debt vulnerabilities?

Further kwanza weakness could exacerbate public debt vulnerabilities, since 78% of general government debt is either in or linked to foreign currency. Moreover, the country's debt-service capacity depends largely on foreign exchange inflows from the oil sector. Oil constitutes over 50% of fiscal revenue and 95% of export earnings, and is a major driver of broader economic activity due to the high amount of foreign currency it brings into the economy.

Furthermore, the government indicates it could issue bonds in the local market, which are linked to the U.S. dollar, with maturities of seven years to 10 years. While this could reduce demand for hard currency, possibly supporting the exchange rate over the next few months, this will further raise the government's exposure to future foreign currency debt repayments.

Under our base-case scenario, we expect modest currency depreciation of about 4% per year through 2027, from the 39% collapse in 2023 (see "Angola 'B-/B' Ratings Affirmed; Outlook Remains Stable," published Feb. 16, 2024).

Chart 3

Can the government continue implementing fiscal reforms given significant socioeconomic pressure?

Given social and inflationary pressures, fiscal headroom will remain limited, creating difficult policy choices for the government. We expect the government will keep fiscal policy tight through gradually reducing fuel subsidies and broad expenditure restraint, resulting in primary fiscal surpluses averaging 4.8% of GDP through 2027. We also expect the government to continue prioritizing its foreign currency to pay external debt, albeit at the expense of reducing the dollar supply to the broader economy.

That said, rising social discontent could challenge the government's ability to address elevated fiscal risk over the longer term. Years of macroeconomic instability, fiscal austerity, inflation, and exchange rate volatility have weighed heavily on socioeconomic conditions and household purchasing power. Inflation is rising and stood at 24.1% as of February 2024, up from 10.5% in April 2023. But, on balance, we still take the view that the government will prioritize debt repayments as well as reprioritize expenditure to ease fiscal pressures and improve social spending. This will, however, only partly limit the impact on the population.

Related Research

• S&P Global Ratings Revises Its WTI and Brent Price Assumptions For 2025 And Beyond On Anticipated Oversupply, Mar. 11, 2024
• Angola 'B-/B' Ratings Affirmed; Outlook Remains Stable, Feb. 16, 2024

Regulatory Disclosure

Regulatory disclosures applicable to the most recent credit rating action can be found in " Angola 'B-/B' Ratings Affirmed; Outlook Remains Stable," published Feb. 16, 2024, on RatingsDirect.

Glossary

• Consumer price index (CPI): Index of prices of a representative set of consumer goods regularly bought by a typical household.
• Current account balance: Exports of goods and services minus imports of the same plus net factor income plus official and private net transfers.
• Current account receipts (CAR): Proceeds from exports of goods and services plus factor income earned by residents from non-residents plus official and private transfers to residents from non-residents.
• Date initial rating assigned: The date S&P Global Ratings assigned the long-term foreign currency issuer credit rating on the entity.
• Date of previous review: The date S&P Global Ratings last reviewed the credit rating on the entity.
• Debt burden assessment: Reflects a sovereign's prospective debt level, as indicated by the general government debt relative to GDP (including assessment of contingent liabilities), the interest cost of the debt relative to general government revenue, and debt structure and funding access.
• Depository corporation claims: Claims from resident depository corporations (excluding those of the central bank) on the resident nongovernment sector.
• Economic assessment: Based on the analysis of economic structure and growth prospects. Reflects income levels (GDP per capita), economic growth prospects, and economic diversity and volatility.
• External assessment: Based on the analysis of external liquidity and international investment position as well as the status of a sovereign's currency in international transactions. Reflects a country's ability to obtain funds from abroad necessary to meet its public- and private-sector obligations to non-residents.
• Fiscal performance and flexibility assessment: Reflects the sustainability of sovereign's fiscal deficits. Based on the prospective change in general government debt, calculated as a percentage of GDP, taking into account long-term trends and a government's fiscal flexibility and vulnerabilities.
• Foreign direct investment (FDI): Direct investment by non-residents.
• GDP per capita: GDP divided by population.
• General government: Aggregate of the national, regional, and local government sectors, including social security and other defined benefit public-sector pension systems, and excluding intergovernmental transactions.
• General government debt: Debt incurred by national, regional, and local governments and central bank debt.
• General government interest: Interest payments on general government debt.
• General government liquid financial assets: General government deposits in financial institutions (unless the deposits are a source of support to the recipient institution), widely traded securities, plus minority arms-length holdings of incorporated enterprises that are widely traded plus balances of defined-benefit government-run pension plans or social security funds (or stabilization or other freely available funds) that are held in bank deposits, widely traded securities, or other liquid forms.
• Gross domestic product (GDP): Total market value of goods and services produced by resident factors of production.
• Gross external financing needs: Current account payments plus short-term external debt at the end of the prior year, including non-resident deposits at the end of the prior year plus long-term external debt maturing within the year.
• Institutional assessment: An analysis of how a government's institutions and policymaking affect a sovereign's credit fundamentals by delivering sustainable public finances, promoting balanced economic growth, and responding to economic or political shocks. Reflects the effectiveness, stability, and predictability of the sovereign's policymaking and political institutions; transparency and accountability of institutions, data, and processes; the sovereign's debt payment culture; and security risks.
• Monetary base: Local currency in circulation plus the monetary authority's local currency liabilities to other depository corporations.
• Monetary assessment: The extent to which a sovereign's monetary authority can fulfil its mandate while supporting sustainable economic growth and attenuating major economic or financial shocks. Based on the analysis of the sovereign's ability to coordinate monetary policy with fiscal and other economic policies to support sustainable economic growth; the credibility of monetary policy, and the effectiveness of market-oriented monetary mechanisms.
• Narrow net external debt: Stock of foreign and local currency public- and private-sector borrowings from non-residents minus official reserves minus public-sector liquid claims on non-residents minus financial sector loans to, deposits with, or investments in non-resident entities.
• Net general government debt: General government debt minus general government liquid financial assets.
• Net external liabilities: Total public- and private-sector liabilities to non-residents minus total external assets.
• Official reserves: Monetary authority liquid claims in foreign currency (including gold) on nonresidents.
• Real GDP per capita: Constant-price per capita GDP.
• Terms of trade: Price of goods exports relative to price of goods imports.
• Usable reserves: Official reserves minus items not readily available for foreign exchange operations and repayment of external debt.