Luanda — Angola is planning to give freer rein to its currency and end a foreign-exchange scarcity that has crippled the oil cartel Opec member’s economy. It also plans to renegotiate some debt, which sent its dollar securities tumbling.
The central bank will scrap the kwanza’s peg to the dollar and establish a band in which the currency will trade before the end of this quarter, governor José de Lima Massano told reporters in Luanda on Wednesday. The central bank won’t publicize the trading range, but will take "corrective measures" if the kwanza floats outside it, he said.
"We have an exchange rate that does not reflect the truth," Massano said. The possibility of a currency depreciation is "great".
The trading band will be decided at a policy meeting on Thursday, the country’s RNA Radio reported, without saying how it got the information.
The move underlines how President João Lourenço, little more than three months after being elected in place of José Eduardo dos Santos, is driving through reforms to bolster growth in Africa’s second-largest oil exporter. Angola’s economy was battered by the fall in crude prices from mid-2014, and its foreign reserves fell to the lowest since 2010.
While its currency has weakened more that 40% against the dollar since the oil crash, analysts say it’s still over-valued. The kwanza has been pegged at about 166 against the dollar since April 2016, but trades at 430 on the black market, according to website kinguilahoje.com.
Authorities have vowed to crack down on black-market currency traders to try to narrow the gap between the official and the informal exchange rate.
Forex reserves dipped to $14.2bn in November from $15.4bn in October, and are down from $20bn at the start of 2017, according to the central bank.
The dollar shortage has left hundreds of companies struggling to pay foreign workers and overseas suppliers, prompting many to leave the import-dependent country. To stem dollar outflows, Angola has imposed limits on the transfer of foreign currencies abroad.
"It’s difficult to tell, but it’s possible they will let the kwanza drop by more than 20%," said Samantha Singh, an analyst at Absa Bank.
Angola will seek to renegotiate domestic and foreign debt to reduce the burden on government finances, finance minister Archer Mangueira said at the same press conference. It may issue more debt if the need arises, he said. The previous government of Dos Santos began talks in August with banks to raise $2bn of bonds.
"We’re developing efforts to renegotiate our debt with our main partners throughout 2018," he said. The nation’s foreign debt is $38bn and renegotiating the maturities and interest rates of liabilities is a "priority", he said, without providing more details.
The yield on Angola’s $438m of securities due in 2019 rose 32 basis points, the most on a closing basis since March, to 5.4% by 10.04am in London on Thursday. The rate on the government’s $1.5bn of debt maturing in 2025 rose six basis points to 6.88%.
"The yield on Angola’s eurobond could rise by 700 to 1,000 basis points," William Jackson, a senior emerging-markets economist at Capital Economics in London, said in an e-mailed note. Much of Angola’s external debt is in the form of bilateral loans from nations such as China, rather than eurobonds, according to Jackson.
The government was carrying out a "diagnosis" of the country’s $5bn sovereign wealth fund after reports last year about alleged mismanagement of the Fundo Soberano de Angola’s finances.