By Rachel Savage
JOHANNESBURG (Reuters) – Angola’s kwanza is Africa’s weakest currency against the dollar so far this year after a 21% plunge in the past month, with analysts flagging low oil prices and an increase in debt payments pushing the central bank to stop propping it up.
The kwanza was trading at 637.30 per U.S. dollar on Monday, having weakened from 506.00 on May 15. It had been between 502 and 506 kwanza to the U.S. dollar since November 2022.
Oil accounts for more than 90% of the southern African country’s exports, and crude exports in the first quarter of this year have fallen around 30% year-on-year. Brent crude traded at $82.10 a barrel on average in the first quarter of 2023, compared with $97.90 in the same period last year.
“The kwanza exchange rate was remarkably stable from November to April, suggesting that the Bank of Angola used forex reserves to stabilize the value of the currency,” Gerrit van Rooyen, an economist at Oxford Economics, said by email.
“Ultimately, the intervention became unsustainable due to the steady slide in the oil price – now below the Ministry of Finance’s budget price of $75.”
The slide in the kwanza could push up inflation, which fell from 27.7% in January 2022 to 10.6% in April, and raise the cost of international debt payments, analysts said.
“(Kwanza) appreciation has flattered Angola’s debt ratios since 2020,” Sarah Baynton-Glen, an economist at Standard Chartered, said.
“Further depreciation would likely reverse this trend (debt-to-GDP fell to 63% at end-2022 from 130% at end-2020) given that (about) 80% of Angola’s debt is foreign currency denominated,” she added, noting that the country has $9.9 billion of external debt payments due this year.
Angola’s economic coordination minister Manuel Nunes Junior was fired last week and replaced with central bank governor Jose de Lima Massano, after the removal of fuel subsidies led to gasoline prices almost doubling and sparked protests in which police said five people died.
A spokesperson for Angola’s central bank declined to comment.
(Reporting by Rachel Savage; Additional reporting by Miguel Gomes in Luanda and Marc Jones in London; Editing by Hugh Lawson and Andrew Heavens)
