Angola is in discussions with the IMF for potential financing options due to soaring bond yields and declining energy prices. The country aims to avoid international debt markets until yields drop to safer levels. With rising loan obligations and heavy reliance on oil revenue, Angola is also considering loans from the World Bank and other financial institutions.
Angola Considers IMF Financing Amid Soaring Bond Yields Amid Oil Slump
Last week, Angola’s government, represented by Finance Minister Vera Daves de Sousa, engaged in discussions with the International Monetary Fund (IMF) about potential financing options. As trade wars and faltering energy prices create challenges, Angola finds itself largely excluded from international bond markets. The minister emphasized the objective was to explore financial pathways rather than making a formal request.
In an interview on Friday during the IMF-World Bank Spring Meetings in Washington, Sousa said, “We didn’t ask it formally — we were just trying to understand and explore what financial options we can have.” After receiving proposals from the IMF, the government, along with President Joao Lourenco, will contemplate whether to submit a formal request for support.
Interestingly, on Monday, Angola’s dollar bonds saw some gains, with yields on its 2048 bonds declining to approximately 13.05% by mid-morning in London. This drop represented one of the stronger performances in emerging markets, particularly for bonds maturing in 2028 and 2029.
As the country braces for escalating loan repayment obligations, Angola directs a significant portion of its fiscal revenue towards salaries and debt servicing. Notably, it faces an upcoming $864 million repayment on a bond set to mature in November. Historically, Angola has had two programs with the IMF since it emerged from a protracted civil war in 2002, including a $3.7 billion extended fund facility established in 2018.
With oil production making up nearly all exports and around 60% of government revenue, Angola, the largest oil producer in Africa after Nigeria and Libya, is also weighing loans from the World Bank and the African Development Bank instead of further borrowing from the international debt market. Sousa remarked, “We will continue exploring those avenues, and we will squeeze” expenditures to mitigate financing needs.
The minister indicated that it is “most likely” Angola will bypass international debt markets until its bond yields drop into single-digit territory. A mere two months ago, the government aimed to issue approximately $1.5 billion in bonds by 2025. However, since then, average yields on Angola’s dollar bonds have surged to 13.5%, marking one of the highest rates globally, as the spread relative to US Treasuries hovers around 930 basis points—a level nearing distressed status for many investors.
While Angola’s economy valued at $115 billion showed growth last year, it remains highly reliant on the oil sector. Recent drops in Brent crude prices—down about 10% this year to below $67 per barrel—undermine revenue projections, particularly with anticipated U.S. tariffs that are expected to dampen global economic activity.
In efforts to understand the potential impacts of decreased oil prices on fiscal stability, the government conducted a “stress analysis.” Sousa noted that if oil prices stabilize around $55 per barrel, “we can manage without additional help, if we go through some adjustments on the expenditure side.” The current government budget has been formulated based on an oil price of $70.
To bolster revenue, the government plans to implement stake sales this year in prominent companies, including telecommunications giant Unitel SA and banks Banco de Fomento Angola SA and Standard Bank de Angola SA.
In summary, Angola is actively seeking financial alternatives amid rising bond yields and a challenging oil market. With potential IMF discussions underway, the country faces a critical juncture as it evaluates its financial strategies. The dependency on oil revenue remains a significant concern, and without shifts in its economic framework, Angola may encounter further financial strain. Stake sales and exploring loans from international financial institutions appear to be part of its broader financial strategy going forward.
Original Source: financialpost.com
