In 2017, the International Monetary Fund decided to assess the Angolan economy to resuscitate it by providing advise on good governance and recommending policies required for financial stability.
Assuming the recommendations are followed accordingly, the IMF is likely to provide the economy with the required injections in the form of loans. As it stands, one area that has significantly changed is the value of the currency. The IMF’s advise has led to the Central Bank devaluing the currency beginning January 2018.
The devaluation of the currency has led to a major fall in the Kwanza against its major trading partners. Main devaluation was result of decline in oil prices in 2014. The decline in oil prices led to series of changes in the health of the Angolan economy. The Government’s fiscal expenditure was heavily reliant on oil revenue which meant it faced fiscal constraints to meet its previous obligations. Therefore, to protect its national currency reserves, it had to devalue its currency.
In terms of exports, the major trading partners of Angola are China, US and India. The value of the Kwanza has fallen by over 20% in this year alone against its major trading partners. Therefore exports are cheaper.
source: tradingeconomics.com
However, A large portion of exports are oil which is sold in dollars, hence why pegging the dollar was necessary for financial stability. However, due to the decline in the economy’s health, maintaining the value of the Kwanza against the US dollar would have led to currency reserves dwindling rapidly. The peg against the dollar was removed to allow a more free-floating exchange rate and remove the black market exchange rate.
Furthermore, imports would also be affected. The devaluation will have an impact on the total volume being consumed. The reduction in the value of the Kwanza will result in the increase in the cost of consuming goods abroad. For example, Portugal a major import partner, would face a change of over 20% against the Euro. Consequently, people in Angola will have to pay more for each product consumed.
Finally, the downgrade by Moody’s in April from B2 to B3 was also sign of the issues facing the Angola’s economy. However, the BNA and the new government of Angola are making structural adjustments to change the future of the economy.
Some of those reforms include change in the value of the Kwanza and most likely it will continue to decline in the foreseeable future.
