Angola's interest payments to creditors double as Chinese debt freeze ends
South China Morning Post
7 min read
Angola's interest payments to external creditors, mostly Chinese, doubled from US$775 million in the first quarter of this year to US$1.57 billion in the second quarter as the three-year debt moratorium with Chinese creditors ended.
The rise was the highest since at least the first quarter of 2012, according to data released by the African nation's central bank, Banco Nacional de Angola (BNA). But the higher interest payments were partly offset by a fall of the deficit in service trade to a two-year low of US$1.77 billion from US$2.34 billion in the first quarter of this year.
Angola, which is the continent's second largest oil producer, is Africa's biggest recipient of financing from China, having taken out 254 loans worth US$42.6 billion from Chinese lenders. It accounts for more than a quarter of Beijing's total lending to African countries between 2000 and 2020, according to the Chinese Loans to Africa Database compiled by the Global Development Policy Centre at Boston University.
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But the effects of the coronavirus pandemic exacerbated Angola's debt problems especially in early 2020 when global crude oil prices plummeted to below US$30 a barrel. Oil makes up 90 per cent of the country's exports, leaving it vulnerable whenever prices fall.
In May 2020, when the Group of 20 launched the Debt Service Suspension Initiative (DSSI) to provide debt relief for poor nations, Angola was one of the countries that applied.
And Chinese lenders, including China Development Bank (CDB) and the Industrial and Commercial Bank of China (ICBC), gave Angola a three-year debt payment freeze for a total of US$4.9 billion, which was to run from June 2020 to May 2023. The Central African nation also received an unknown amount of debt relief under DSSI from China Eximbank.
Mark Bohlund, a senior credit research analyst at REDD Intelligence, said it is likely that the sharp increase in the 2023 second quarter interest payments reflects the replenishment of an escrow account at China Development Bank (CDB), from which interest payments were made during the three-year debt moratorium from June 2020 to May 2023.
Bohlund said although Banco Nacional de Angola has not made public the balance of the CDB escrow account, it is estimated that the majority of the US$800 million increase in interest payments between the first two quarters of this year was constituted by the replenishment of this account to US$1.5 billion as mandated in the debt moratorium agreement.
"As a consequence, it is still too early to say to what extent Angola's interest payments will rise as a result of the end of the debt moratorium. There are also other factors in play, such as the rise in global interest rates as some of Angola's external loans are at variable rates," Bohlund said.
However, he said Chinese principal payments appear to be lower in the second quarter. There is a smaller US$318 million reduction in Angolan debt owed to Chinese creditors than the very large US$1.5 billion fall in the first quarter of the year.
Bohlund said Angola's external debt level will remain at around US$50 billion over the coming year, with Chinese creditors accounting for around 40 per cent.
The Banco Nacional de Angola, pictured, said the jump in interest repayments was the highest since at least the first quarter of 2012. Photo: Corbis via Getty Images alt=The Banco Nacional de Angola, pictured, said the jump in interest repayments was the highest since at least the first quarter of 2012. Photo: Corbis via Getty Images>
"We expect the higher principal payments to be to a high degree offset by new loan disbursements, such as those by Industrial and Commercial Bank of China (ICBC) for the Caculo-Cabaca hydropower project, where the construction of the water reservoir was recently commenced," Bohlund said.
ICBC is China's second largest creditor to Angola, with around US$5 billion outstanding in the first quarter of this year, according to REDD Intelligence, a provider of intelligence and data on emerging market sovereigns and companies, with calculations based on BNA and Ministry of Finance data.
External debt disbursements are also scheduled to spike to 985 billion Angolan kwanza (US$1.7 billion) in June, according to Ministry of Finance data, almost exclusively due to a commercial debt disbursement.
This is likely to be connected to the Caculo-Cabaca project, although disbursements connected to the ongoing construction of the Agostinho Neto International Airport, also led by a Chinese firm, is also a possibility, Bohlund said.
"We expect loan disbursements connected to these two projects to push Angola's debt to Chinese creditors back towards US$20 billion in the second half of the year," he said.
The rising global oil price has gone a large way to helping the African nation's economy. Photo: AFP alt=The rising global oil price has gone a large way to helping the African nation's economy. Photo: AFP>
The debt reprofilings, most of which had a three-year grace period and repayment over seven years, provided considerably longer breathing space than the initial DSSI terms, even though Angola agreed to pay interest during the suspension period, according to the China Africa Research Initiative (CARI) at Johns Hopkins University in a study early this year.
The CARI study said the CDB deal also contained an oil price contingency that would cut short the suspension period once the oil price surpassed a certain threshold, said to be US$60 per barrel.
Sometime in late 2021, the contingency was triggered, and Angola started to repay the principal to CDB in the first quarter of 2022. By then, the oil price had jumped to over US$90 per barrel from the level of US$55, when the debt was reprofiled.
Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, said the overarching point and takeaway is the recent surge in oil prices towards a US$100 a barrel is improving Angola's prospects and balance sheet. He explained that Russia and Saudi Arabia "have wrestled control of the oil price away from the US and are steering the price straight to US$100".
"Angola has entered the sweetest of sweet spots," he said.
Satchu added that the resumption of payments to China has evidently increased the interest payments load.
"I think Angola can point to the oil price and probably suggest a quid pro quo now [for the moratorium] where they essentially accelerate payments and Chinese debt paydown," he said.
Since becoming Angolan president in 2017, Joao Lourenco has been trying to diversify the economy away from oil and reduce the country's dependence on China.
To that end, Lourenco has been trying to align more with the United States and Europe, than China - as was the case with his predecessor, the late Jose Eduardo dos Santos, who attracted Chinese capital for the reconstruction of the economy after the 26-year civil war ended in 2002.
Recent investment from the US includes US$900 million in funding for a solar plant and a US$250 million proposal to fund the Lobito Atlantic Railway Corridor - an open access rail line from Lobito Port in Angola to the border with the Democratic Republic of the Congo.
Nevertheless, Angola still needs China to fund the construction of the major infrastructure projects such as the 2,172 megawatt Chinese-built Caculo-Cabaca hydropower station in the north-central province of Cuanza Norte. The project will be funded by ICBC, while the Lobito oil refinery, along the Atlantic coast, will be built by China National Chemical Engineering.
