RPT-Fitch affirms Angola at 'BB-'; positive outlook
May 7 (Reuters) - (The following statement was released by the rating agency)
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 the Short-term IDR at 'B'.
KEY RATING DRIVERS
The decision to affirm Angola's rating with a Positive Outlook reflects the following factors:
- A reduction in external vulnerability, reflecting Angola's commitment to macroeconomic reform and prudent policies, which has helped to rebuild external buffers, reducing vulnerability to an oil price shock. A healthy current account surplus has supported reserve accumulation, which now stand at 6.8 months of current external payments (CXP) compared to 3.7 months in 2008.
- Strong growth, more recently in non-oil GDP, has supported economic diversification as well as rapid increases in per capita income - the fastest of Fitch-rated sub-Saharan African sovereigns. Fitch forecasts that the overall economy will expand by 8.2% and 7.8% in 2013 and 2014 respectively.
- Inflation has fallen to single digits for the first time in decades, reflecting exchange rate stability and improved monetary policy, a trend which is expected to continue.
- An improved fiscal position, following three years of large fiscal surpluses. Government debt as a percentage of GDP has fallen to 22% in 2012 from 36% in 2010, while rising deposits are expected to turn the country into a net domestic creditor in 2013. Debt ratios are expected to decline modestly in 2013, despite an expected Eurobond issue, due to strong nominal GDP growth. A new sovereign wealth fund, mainly domestically invested, will help sustain domestic spending through an oil downturn.
- The budgeting and debt management process have improved, enabling better management of revenue and expenditure. The authorities have projected a fiscal deficit for 2013. Encouragingly, this includes state oil company Sonangol's quasi-fiscal operations for the first time. Moreover, in Fitch's view, under-execution of planned investment and a higher than budgeted oil price will see the government maintain a modest surplus.
- A more dynamic oil sector in comparison with Nigeria or Gabon (both rated 'BB-'/Stable), reflecting continued exploration and a favourable regulatory environment. Oil production is expected to reach 2mn b/d by 2015, up from 1.75mn b/d in 2012. The start of Liquefied Natural Gas (LNG) production in 2013 will also provide a boost to the sector.
- The government's renewed commitment to policy reform following the latest elections which showed a slight decline in support for the ruling MPLA.
- Poor governance, with World Bank governance indicators below both the 'B' and 'BB' median, remains the major constraint on the rating. The weak business environment and low human development also pose concerns.
The Positive Outlook reflects the following factors that may, individually or collectively, result in an upgrade of the ratings:
- A continued track record of improved economic management and strengthening external and fiscal buffers
- Further regulatory reforms being reflected in improvements in the business environment and per capita income as well as improvements in governance measures.
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. However, future developments that may, individually or collectively, lead to a stabilisation of the Outlook include:
- A severe and sustained fall in oil prices that materially eroded external and fiscal buffers and failed to bring an effective policy response
- A sustained weakening in public finances due to rapid increases in current expenditure, leading to large deficits and a sustained increase in debt.
The ratings and Outlooks are sensitive to a number of assumptions.
- Fitch assumes there will be no major fall in the price of crude oil, Angola's main export, in line with the agency's Global Economic Outlook. The Brent oil price is forecast to average USD105 and USD100 per barrel in 2013 and 2014 respectively, compared with USD112 per barrel in 2012.
- Fitch assumes that the pace of regulatory reform will continue, in addition to the authorities' commitment to prudent economic policies.
- A continuing stable political environment, with no significant challenge to the current ruling establishment
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