The analyst at the rating agency Moody’s, which follows the Angolan economy, said this Sunday, June 28, to the Lusa agency, that the debt relief granted by China does not constitute a financial default because it does not involve private creditors.
“As China is a bilateral partner, financial aid to Angola is not considered a financial default (‘default’) because it involves only commercial debt; between countries we consider this bilateral aid, even if it is between public banks, because it is guaranteed by the State and it involves the relationship between states, “said Aurelien Mali.
In an interview with Agência Lusa from Dubai, the French analyst who has followed the Angolan economy for years admitted that “there is a lot of opacity” in loans and doubts about the announcement made by the Chinese President about two weeks ago about debt relief, but he explained: “The announcement follows bilateral agreements and meetings between states and, to be very clear, this is not something that we consider to be a ‘default'”.
On June 19, the Angolan newspaper Expansão reported that Angola had achieved a suspension of debt interest payments for years, in an amount that could reach US $ 21.7 billion (EUR 19.3 billion), of which 4 , 7 billion dollars (4.2 billion euros) in official bilateral debt, to which is added another 14.6 billion dollars (13 billion euros) to the Development Bank of China and 2.4 billion million dollars (21.3 billion euros) to the Bank of China.
Stressing that “there is still no official confirmation by the Government, it is just a newspaper article”, Aurelien Mali points out that “what constitutes a ‘default’ in the light of Moody’s criteria is very clear with regard to debt to the private sector , whether external or domestic and, even though there are different categories and examples, basically if the creditor receives less than the original contract provided for, then it is a ‘default’ “.
The lower oil price and the additional budgetary imbalance motivated by the covid-19 pandemic, both in the increase in health expenditure and in the decrease in tax revenue, obliges Angola to speak with creditors, recognizes the analyst.
“Looking at the external payments that are due this year, knowing that there are no eurobond payments before 2025, and taking into account that multilateral loans are long-term and low interest, in a context where external payments represent 5.7 billion dollars (5 billion euros) this year in interest alone, we see that most payments are due to bilateral partners, “says Mali.
At the end of 2019, Angola’s bilateral debt was US $ 28.6 billion, representing approximately 42% of GDP and 65% of all external debt.
Debt to multilateral financial institutions, such as the International Monetary Fund, the World Bank or the African Development Bank, was US $ 4.2 billion (3.7 billion euros), representing about 9% of the external debt, to which 8 billion dollars in eurobonds (7.1 billion euros) and an additional 4.2 billion dollars in supplier credits, according to Moody’s.
For Mali, “the only part of the debt that can be negotiated without major consequences is that of bilateral partners, since eurobonds are a complex mechanism, and if they are renegotiated it is a ‘default’, and that would be very bad”.
Furthermore, he concludes, “multilateral loans are the last line of defense and multilateral financial institutions are even putting more money into the country”.
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