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Fitch Ratings has downgraded Angola's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Stable.


Key Rating Drivers

The downgrade of Angola's ratings reflects the impact of lower oil production and lower oil prices and sharper than expected kwanza depreciation, which has increased public debt levels and external debt servicing costs while international reserve levels have also declined. Solid progress on reforms in the context of an IMF-supported macroeconomic programme has not been sufficient to arrest the deterioration in public and external finances. Moreover, while government debt is expected to decline rapidly under the programme, risks to this scenario are now elevated.

Following the kwanza's fall by 36% in 2019 against the dollar, Fitch expects downward pressure on the kwanza to continue in 2020, albeit more moderate due to the substantial external adjustment and the monetary tightening that has taken place. In October 2019, the National Bank of Angola increased the reserve requirement ratio to 22% from 17% and lowered the limits on banks' net open foreign-currency positions to 2.5% of capital from 5.0%, which will induce banks to sell more FX into the market. Uncertainty about the level of the exchange rate remains unusually elevated as FX liberalisation is still recent and it is not clear equilibrium has been reached.

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