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Angola to seek IMF bailout as oil price slump harms economy

• Matina Stevis
• The Wall Street Journal
• April 8, 2016 12:00AM

Garbage piles up in Angola's capital, Luanda, reflecting a government revenue crisis

Angola will turn to the International Monetary Fund for a bailout to help cope with the oil-price rout that has hit its economy hard, joining a growing list of commodity-dependent African economies seeking assistance from the institution to weather the adverse economic climate.

The announcement represents an about-face for a government that had previously rejected the idea of seeking IMF assistance and ends months of speculation over how the West African country will cope with a looming financial crisis on the back of record-low oil prices.
The move could also have consequences for Portugal, one of the eurozone’s most fragile economies whose companies have invested heavily in Angola in recent years amid an economic crisis at home. Portugal itself requested a three-year bailout from the IMF and European Union peers exactly five years ago. Angola, a former Portuguese colony, is Portugal’s fourth-largest export market. Companies are suffering from a fall in consumption in Angola and from dollar shortages. Portuguese banks are also being squeezed. Shares of Banco BPI, which owns 50.1 per cent of Angola’s largest private lender, closed down 6 per cent on Wednesday. The bank is trying to reduce its exposure to Angola under orders from the European Central Bank. Angola represented more than half of BPI’s profit in 2015.
Capital Economics estimates the size of Angola’s bailout could be hefty as the country’s financing requirements this year could amount to $US8 billion ($10.5bn), or 9 per cent of gross domestic product.
The aid “should reduce the risk of a messy balance-of-payments crisis. But the fiscal austerity that is likely to accompany any deal supports our view that growth will be painful,” Capital Economics economist John Ashbourne said.
Late last year, in the midst of severe dollar shortages, Angola opted to raise $US1.5bn to plug foreign currency into the economy through the issuance of a 10-year Eurobond. But at 9.5 per cent yield, it paid a dear price for it.
Oil shipments account for 95 per cent of export earnings and more than half of government revenue, a reliance the government admits is too high. The country benefited greatly from Chinese largesse in Africa, but this is reducing as China’s economy slows.
“The government of Angola is aware that the high reliance on the oil sector represents a vulnerability to the public finances and the economy more broadly,” the finance ministry said. “The government will work with the IMF to design and implement policies and structural reforms aimed at improving macroeconomic and financial stability, including through fiscal discipline.”
A criticism of Angola’s economy is that too much control is exerted by President Jose Eduardo dos Santos, who has ruled since 1979. While nearly half of the nation’s 24 million people survive on less than $US1.25 a day, Mr dos Santos’s daughter, Isabel dos Santos, is Africa’s richest woman.