Angola Adopts a New Currency Regime
Angola, Africa’s second largest oil exporter, has ended its two-year currency peg to the US Dollar. This follows a recent statement from the National Bank of Angola (Banco Nacional de Angola, BNA) indicating that the exchange rate would henceforth be determined at currency auctions. The first auction held on January 9, 2018, resulted in a defacto 10.1% devaluation against the euro and 13.4% against the USD. The change in policy was widely anticipated as the new government of President Joao Lourenco had indicated its commitment to fiscal and foreign exchange adjustments.
Both the internal and external adjustments were prompted by sharp currency depreciation and rapid declines in foreign exchange reserves following the collapse in oil prices in a country where oil exports are the main source of growth and foreign exchange earnings, accounting for more than 50% of GDP and 75% of government revenues. The weakening of foreign reserves, which shrank by more than 50% to US$14.3 billion, was exacerbated by the withdrawal of correspondent banking relationships by large international banks as part of their de-risking strategy.
Central Bank of Angola Net International Reserves (USD billion)
Source: Bloomberg, Afreximbank Research
The sharp drawdown in the foreign reserve position had undermined the central bank's ability to support the kwanza through market interventions, a constraint which contributed to the adoption of a number of policy measures as part