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Angola and Mozambique currencies among most vulnerable to pandemic

The COVID-19 pandemic will put pressure on African currencies, with South Africa, Angola and Mozambique among the countries whose currencies are most vulnerable, the consultancy Fitch Solutions, a unit of US credit rating agency Fitch Ratings, said in a report out on Tuesday.

The South African rand is particularly vulnerable as it is linked to risk aversion in emerging markets, but the currencies of Angola, Botswana and Mozambique will also be affected, the report states, predicting a drop of more than 30% in the value of the Angolan currency, the kwanza, against the US dollar.

In a note on trends in the national currencies of some African economies this year, Fitch analysts take the view that “the aversion to high risk following COVID-19 will lead to a strong demand for the dollar and an increase in capital flight due to high inflation and weak metrics of the economies, which leads to more weakness of the currencies.”

Mozambique’s metical has weakened by almost 8% against the dollar so far this year and is expected to face more pressure this year due to the increase in inflation caused by the impact on food prices of last year’s bad weather, the report says, warning that April’s cut in interest rates to 11.25% make the metical still less attractive.

On Angola, the report says that following a 14.4% drop in the value of the kwanza against the dollar so far this year, the currency is to continue to weaker due to a reduced entry of dollars in a context of low oil prices, which in turn will weigh still more on the exchange rate and on the volume of foreign reserves.

Even so, the analysts write, the weakening of the kwanza should not be as pronounced as in 2018 and in the second half of last year, after the government abandoned the reference value of 167 kwanzas per dollar as part of its economic reforms to attract foreign investment, allowing a 52.4% weakening in the kwanza in 2018.

Fitch sees the kwanza weakening by 31.2% this year to an average of 530.4 kwanzas per dollar, against 364.8 in 2019, with the central bank trying to ease the pace of depreciation to limit the impact on the debt burden.

“A depreciated kwanza will make the payment of the external public debt, which we estimate was 47.4% of GDP in 2019, more expensive for the government, which will encourage the National Bank of Angola to limit the depreciation of the currency during this year,” conclude the analysts.

Africa has so far recorded 1,136 deaths from COVID-19 and 22,513 cases of infection in 52 countries, according to the latest update from the African Union’s Centre for Disease Control and Prevention (Africa CDC).

Among African countries that have Portuguese as an official language, Equatorial Guinea leads in number of cases of confirmed infections, at 79, followed by Cabo Verde (67 cases and one death), Guinea-Bissau (50 cases) Mozambique (39) and Angola (24 cases and two dead). São Tomé and Príncipe remains with no cases, after four positive cases that had initially been identified were not confirmed by the second test.

Globally the COVID-19 pandemic has claimed more than 167,000 lives and infected more than 2.4 million people in 193 countries and territories.

Source: Macau Business

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