Outlook stable on improved fiscal and external positions
Standard & Poor's Ratings Services have raised its long-term foreign and local sovereign credit ratings on the Republic of Angola to 'BB-' from 'B+'. They are affirming the 'B' foreign- and local-currency short-term sovereign credit ratings. At the same time, they are revising Angola's transfer and convertibility (T&C) assessment to 'BB-' from 'B+'. The outlook is stable.
"The upgrade reflects our view of the robust improvement in Angola's fiscal and external balances," Standard & Poor's credit analyst Ravi Bhatia said. "Following a sharp fall in oil prices and production in 2009, a strong rebound in prices in 2010 returned the fiscal and current account balances to surpluses amounting to an estimated 8.7 per cent and 8.2 per cent of GDP, respectively. We expect that relatively high oil and gas prices as well as some increase in oil and gas production should support the economy over the 2011-2014 forecast horizon."
Money management
In addition, Angola has started to strengthen its macroeconomic and monetary management in line with recommendations made under the country's Stand-By Arrangement (SBA) with the IMF. These reforms are critical for Angola to mitigate the risks associated with its overwhelming economic dependence on the oil sector, and to address weaknesses in its macroeconomic management and institutional quality.
"The stable outlook balances our view of Angola's institutional weaknesses and its oil-exports dependency against its projected low government debt, strong external balance sheet, and strong oil production capacity," Mr. Bhatia added.
Downward pressure on the rating could build, in our opinion, if global oil prices fell sharply, leading to a decline in oil revenues, or if government debt were to rise significantly. In addition, a deterioration in the political, institutional, or macroeconomic policy environment could also put downward pressure on the ratings.
We would consider raising the ratings if the authorities consistently improve fiscal performance and significantly enhance foreign currency reserves to buffer Angola more effectively from external shocks and if institutional capacities as well as efficiencies converge with higher rated peers'.
