Paying Chinese loans with Angolan oil has its risks - Fitch Solutions

Paying Chinese loans with Angolan oil has its risks - Fitch Solutions


Fitch Solutions said, today, that the model of oil-paid loans, widely used by China in financing Africa, in this case Angola, will increase in the continent, but warns about the risks to both.

"While loans paid with petrol reduce the risk of payment for the Chinese lenders by allowing them not to rely on the ability of the Angolan government to meet debt obligations, we note that the high levels of debt in Angola - an estimated 71.4% of the GDP in 2018 - will limit the ability to support infrastructure projects and restrict the growth of the construction industry in the coming years," the analysts write.

In a note about Angola's growing dependency on Chinese funding, which will reach more than 40% of the total debt following an $11 billion financing agreement for 78 infrastructure projects settled in September in Beijing, Fitch Solutions writes that "the costs of servicing debt will increase and, with the decline in oil revenues, the budget should remain in deficit until 2027."

Despite the risks of this model, Fitch Solutions recognizes that Chinese support to Africa in general, and Angola in particular, is expected to grow due to the financing difficulties faced by African countries. This is a result of the high levels of public debt that resulted from the decline in the prices of raw materials since 2014 and the consequent impact on public accounts and economic growth, a situation that has already sent Angola into a recession in 2016. This situation was still being felt in the first quarter of this year.