Fitch Ratings has affirmed Angola's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-' with a Positive Outlook. Fitch has also affirmed the Country Ceiling at 'BB-' and Short-term IDR at 'B'.
Government debt has been on a steadily declining trend since 2010, when it reached 37% of GDP, falling to 25% in 2012 and an estimated 24% in 2013 - well below the 'BB' median of 39.5% of GDP. This trend is expected to continue over the next two years, with Fitch forecasting debt as a percentage of GDP dropping below 20% by 2015.
The 2014 budget is expected to target a deficit of 4.9% of GDP, compared with 3.8% of GDP projected for 2013. In Fitch's view, the budget reflects a political wish list of capital projects, rather than a realistic assessment of the government's execution capacity. Fitch expects that under-execution of planned investment will see the government accounts roughly balanced until 2015. The new Sovereign Wealth Fund, which is expected to begin operating in 2014 with funds totalling USD8.6bn, can invest one-third of its capital into regional infrastructure projects, which will help to support investment if oil prices fell sharply.
Angola's commitment to macroeconomic reform and prudent policies has improved the country's external buffers, with reserve cover rising to an estimated 8.1 months in 2013 from a low of 3.3 months in 2009, reducing vulnerability to an oil price shock. The surplus on the current account will continue to support reserve accumulation. Inflation is expected to remain in single digits for the second consecutive year in 2013, reflecting exchange rate stability and improved monetary policy, although further declines will be harder to achieve due to its structural nature.
High commodity dependence, at 97% of exports and 73% of government revenue is well above other Africa oil exporters and is a constraint on the rating. However, the economy is diversifying. Non-oil GDP's contribution to the headline figure has steadily increased to 60% of GDP from 40% in 2008, a trend which is expected to improve in the medium term as growth in oil production rises at a slower pace.
Fitch expects growth to further slow in 2013 to 4.9% of GDP due to stagnant oil production, which has remained broadly unchanged between 2012 and 2013. The authorities forecast that growth will pick up in 2014 to 8.2%. Fitch expects more modest growth of 6.3% for 2014, notwithstanding a post-drought pickup in agricultural production. Much will depend on whether oil production increases in line with the authority's expectations and government spending on infrastructure gathers pace.
Angola's oil sector has greater potential than either similarly-rated Nigeria or Gabon. Continued exploration and a favourable regulatory environment will support its expansion, although technical challenges have set back expected production increases. Oil production is forecast to reach 2m b/d by 2015, up from 1.77m b/d in 2013. The start of liquefied natural gas production in 2013 has boosted the sector.
Weak governance remains a significant constraint on Angola's rating. Angola ranks among the lowest of all Fitch-rated sovereigns in the World Bank's Governance Indicators, despite some improvement in 2012.
Fitch has previously highlighted that Angola's future upgrade depends, among other things, on an improved business environment. The further deterioration in the World Bank's Doing Business Indicator, is therefore not encouraging from a rating perspective. Angola's 2014 World Bank Doing Business Index ranking is 179 out of 189, down one place from 2013 and lower than it scored in 2011 when the country ranked 164 out of 183 countries.
The current rating Outlook is Positive. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating downgrade.
