news - 05 September 2016

Eaglestone Securities analyse of the recent budget amendments is mentioned in Macauhub

Governments of Angola and Mozambique increase borrowing from domestic banks

The governments of Angola and Mozambique, faced with complicated economic and financial situations, have been forced to revise their respective state budgets, in both cases choosing to increase borrowing from domestic banks.The problems in these two Portuguese-speaking countries, as with other African countries, are due the fall in commodity prices since 2014, which in Angolan's case led to a fall in oil revenues and in Mozambique has resulted in a drop in investment and postponement of projects to extract raw materials. Mozambique's revised state budget, which was also intended to incorporate about US$1.4 billion of previously unbudgeted debt of public companies, projects growth of 4.5%, 2.5 percentage points lower than the first version and applies spending cuts in all areas, with the exception of Health, and a significant impact on public works is expected.

The Eaglestone Securities consultancy, in a recent analysis of budget amendments, noted that domestic revenues now had greater weight in terms of funding the Mozambican state, including through a "significant increase" in domestic credit, which will "almost triple" compared to the initial proposal. Compared to the first version of the budget, tax revenue to total revenue fell by 1.9 percentage points to 59.4%, while domestic financing rose from 3.1% to 8.9%, to a total of 21.768 billion meticais. External financing of 37.850 billion meticais, increased its weight from 15.1% to 15.6% of total revenues and foreign aid, which is currently suspended by partners following the disclosure of previously hidden debts has been reduced by 2.6 percentage points to 7.5%.

In the case of Angola, domestic financing, of 2.089 billion kwanzas, actually exceed external financing, of 1.384 billion kwanzas in the revised state budget. Compared to the initial budget proposal, domestic funding increases by almost 50%, while external funding falls 8.8%, with the weight of both these components (3.474 billion kwanzas) is practically equal to tax revenues (3.485 billion kwanzas ). Commenting on the new Angolan budget proposal, which forecasts growth of 1.1%, a third of the figure included in the initial state budget, Eaglestone noted the government "believes that the country continues to have access to sufficient funding, including from international sources", which is why it decided to do without the financial assistance of the IMF. "However, it is clear that the level of Angola's debt continues to rise at a very fast pace and therefore careful monitoring is required. This is particularly relevant given the increasing levels of debt denominated in foreign currency, as well as the possibility of further depreciation of the kwanza in the short term, which may make it more difficult for the country to honour its commitments", Eaglestone warned. In July the Angolan government announced it was in final negotiations for loans from other foreign entities in the order of US$3.3 billion. Between November 2015 and June 2016, the state borrowed US$11.460 billion, including US$5 billion from the China Development Bank and US$2 billion from other Chinese banks. Angolan state debt currently totals an estimated US$47.9 billion, including US$25.5 billion in foreign loans (excluding debt of public enterprises such as oil company Sonangol).