 "Angola strikes unusual deal with China to ease debt crunch")
Angola is using an unconventional arrangement with China to alleviate its debt burden, according to the country’s finance minister. Vera Daves de Sousa revealed to the Financial Times that Angola has reached an agreement with the China Development Bank, its largest creditor to access funds held as collateral for a significant loan.
Amid the economic challenges worsened by the pandemic, Chinese creditors had earlier granted Angola a three-year moratorium on debt payments. However, the country’s economy suffered a sharp downturn upon the resumption of payments in 2023, impacting its currency, the kwanza. Despite this, Angola was made to continue other payments, including those on US dollar bonds, throughout the pandemic.
This deal sheds light on the behind-the-scenes efforts of Chinese banks to assist struggling countries by offering payment support rather than outright debt relief.
The oil-producing country owes Chinese creditors about $17 billion, nearly 40% of its external debt. Its debt payments shot up last year after a debt service suspension agreement with Chinese lenders ended, contributing to its currency weakening and inflation rising.
The lending terms set by the state-owned China Development Bank (CDB) mandated Angola to maintain a minimum cash collateral of $1.5 billion in a special escrow account as security. According to Daves de Sousa, Angola was required to supplement this collateral when the oil price exceeded $60 a barrel.
Under the new agreement, Angola will be able to access funds from the escrow account to make monthly interest payments, with an estimated availability of $150 million to $200 million. This arrangement aims to avoid a broader debt restructuring. Daves de Sousa emphasized that it does not involve changes to maturities or payment schedules; instead, Angola seeks to expedite debt repayment to prevent default.
Angola’s government debt plan indicates plans to repay $3.1 billion in loan amortizations to the CDB in 2024, with total payments to external creditors expected to reach $10.1 billion this year. S&P Global Ratings reported that the country holds $2.5 billion in escrow accounts earmarked for repaying Chinese creditors, with approximately 80% of its debt to China structured as oil-backed loans.
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