Angola Said to Plan $25 Billion Borrowing to Fund Budget Gap

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Angola plans to borrow $25 billion this year as the drop in oil prices threatens to swell the southwest African nation’s budget deficit, government documents show.

The country’s central bank is seeking to raise $15 billion selling Treasury bills and bonds, with the balance to be funded by foreign debt, according to a Finance Ministry proposal obtained by Bloomberg News. Repeated calls for comment to the ministry’s spokesman, Amilcar Xavier, weren’t returned.

Angola, Africa’s second-largest oil producer, is struggling to cope with crude prices that have slid more than 40 percent over the past year. The government in February cut its 2015 budget by 26 percent to 5.4 trillion kwanza ($49 billion), stalling efforts to complete a new airport, refinery and transit system, while predicting the fiscal gap will reach 7 percent of gross domestic product.

“Most of the foreign debt will be credit lines from countries such as China and Brazil,” Markus Weimer, director of Faktor Consult Ltd., a London-based consultant, said in e-mailed comments. “A functioning public transport system and capacity to produce refined product are essential to keep down costs which in other countries have sparked protests. They’re strategic priorities for the government.”

The government of President Jose Eduardo dos Santos plans to decrease the share of tax revenue from oil to 42 percent in 2015 from 72 percent last year and diversify the economy by pushing projects in agriculture, manufacturing and mining. It has also updated tax rules to improve collection, while eliminating fuel subsidies to save an estimated $2.2 billion a year.

Debt Talks

The World Bank estimates Angola’s GDP at about $124 billion, compared with $366 billion for South Africa and $522 for Nigeria. South Africa’s National Treasury plans net borrowing of 173 billion rand ($14 billion) in the fiscal year through March 2016.

By May 20, Banco Nacional de Angola, the central bank, sold 150.6 billion kwanza in bonds indexed to the dollar and 151.1 billion kwanza in non-indexed notes, a central bank document obtained by Bloomberg News shows. It also sold 302.5 billion kwanza in T-bills, 75 percent of the amount set for this year, the document shows.

The government has said it is negotiating $500-million loans each from Societe Generale SA and the World Bank, and $250 million from Goldman Sachs Group Inc. in separate deals.

A May 11 decree by dos Santos increased a loan from London-based Gemcorp Capital LLP to $550 million from $250 million. The country has also said it’s planning to issue a $1.5-billion Eurobond this year.

Conservative Price

“The budget is based on a very conservative oil price assumption of $40 a barrel,” Victor Lopes, senior economist for sub-Saharan Africa at Standard Chartered Plc in London, said by e-mail. “With higher oil prices than this, borrowing requirements might eventually be lower than initially planned.”

Brent crude traded at $62.06 a barrel at 4:39 p.m. in Luanda. Angola’s net foreign reserves fell to $26.2 billion in February from $27.5 billion in December, according to central bank data compiled by Bloomberg.

The kwanza, which weakened 0.6 percent to 110.9346 per dollar, has lost 6.7 percent of its value this year, reaching a record low of 110.9377 earlier on Thursday. Yields on $1 billion of securities due August 2019 and backed by the Angolan government rose three basis points to 6.57 percent, the highest since April 8 on a closing basis, and compared with 6.39 percent when they were issued in August 2012.

Fitch Ratings reduced Angola’s outlook to negative on March 27, forecasting a slowdown in the economy due to a decline in government spending, a shortage of dollar liquidity and uncertainty about the price of oil. Moody’s Investors Service cut its outlook for Angola’s credit rating to negative on March 3, two weeks after Standard & Poor’s lowered the country’s rating to four levels below investment grade.

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