Angola is torn between IMF praise and K recovery

The Angolan government was forced to suspend the payment of unsecured bilateral debt to avoid default. The IMF considers this initiative positive, but the main problem remains – the country’s inability to create wealth.

In October 2020, the Economist Intelligence Unit (EIU) considered the suspension of the payment of Angola’s debt to China a good initiative, but warned that additional financial assistance would be needed to avoid a “default” in the future. “The suspension of debt service to Chinese creditors will give some fiscal room to maneuver, but more suspensions of other creditors such as the G20 or even private creditors will be required to avoid financial default in the future,” analysts warn The Economist

This assessment of Angola’s government accounts and the need for a further suspension of debt payments proved accurate, as reflected in a request made last week by the Treasury Department to sovereign partners to suspend the payment of unsecured bilateral debt between July 1 and December 31 of this year. The office, led by Vera Daves, said the break would save $ 3 billion.

The Angolan government claims this action will help mitigate the impact of the covid-19 pandemic and increase the capacity to continue developing and implementing its long-term sustainable economic growth program for the country.

The problem is in divergent paths

Beyond this argument, quite reasonably, Angola is counting on the support of the International Monetary Fund (IMF). “Angola’s decision to ask for an extension of debt relief under the Debt Service Suspension Initiative (DSSI) until December this year is positive,” said Antoinette Sayeh, deputy executive director of that body in a statement that said the IMF, as part of its expanded financial the program will immediately provide $ 772 million in aid to Angola.

The IMF endorses the Angolan government’s “firm” policies that ensure debt sustainability, while maintaining significant uncertainty about the future. Oil revenues continue to shrink and foreign investment remains a mirage.

“Forecasts of a global economic recovery show diverging paths between a two-tier recovery and a K-shaped recovery. [queda rápida com uma subsequente recuperação diferenciada]while the developed world and some emerging markets are doing well when it comes to recovery, and some of the developing and low-income countries are lagging behind. ” The diagnosis was voiced over the weekend by World Bank CEO Ngozi Okonjo-Iweala on the sidelines of the G7 summit and, in fact, points to a slower recovery in Latin America and Africa, especially due to the uneven distribution of the covid-19 vaccine.

In other words, on the cost side, Angola is making the necessary adjustments, but income increases that could lift the economy out of the doldrums could be delayed, putting even more pressure on government accounts. The country is still in recession, negative growth, and the goal is to remain stagnant this year. This is clearly an insufficient target, which puts even more pressure on the government and the MPLA itself, given next year’s general elections.