Economist Alberto Vunge said on Tuesday that there was an “important reduction” of foreign exchange on the market in Angola with the absence of the National Treasury in the first half of 2023, and the scenario, “which prevails,” contributes to the devaluation of the kwanza.
“The devaluation of the kwanza (Angolan currency) is due to supply shocks on the foreign exchange market. There was an important reduction in the supply of foreign currency with the absence of the National Treasury in the first half of this year, and it continues to be absent,” the Angolan economist told Lusa.
Two reasons underpin this reduction in the supply of foreign exchange he said, namely the fact that the Angolan Treasury “is allocating revenues in foreign currency to pay off debt without replacing it with new foreign currency”.
“This deprives them of liquidity in foreign currency to sell on the foreign exchange market,” he added.
Vunge also pointed to the “poor performance of external accounts” as another reason for the fall in foreign exchange.
“Today it is proven that there is a correlation between the level of the exchange rate and the level of prices in the economy,” the economist noted, noting that Angola is dependent on imports, “even for basic goods”.
With the “exchange rate devaluing, as it is,” he noted, the inflation target set by the authorities cannot be achieved.
Banco Fomento Angola (BFA) said today that the kwanza would appreciate in the medium term, despite the drop of almost 10% against the dollar last week, accumulating losses of 23.75% since the start of the year.
“Last week was marked by the continued depreciation of the kwanza against the dollar and against the euro,” BFA analysts wrote in their weekly commentary on market developments, pointing to drops of 9.87% against the dollar and 9.95% against the euro.
The kwanza ended last week at 660.6 kwanzas to the dollar and 711.4 kwanzas to the euro, and BFA said that “the pace of the kwanza’s fall does not appear to be slowing down”.
The Angolan government decided, since 2 June, to partially remove subsidies on gasoline, which now costs 300 kwanzas (€0.48) a litre compared with the previous 160 kwanzas (€0.25), with reports of a rise in the price of food and other services.
Asked whether the government should back down on the fuel measure, Vunge said that “there is still no way of isolating the effect of withdrawing the fuel subsidy on inflation”.
And given that it was a measure that had been taken “after the price slide”, he did not consider that “it is a cause of inflation”.
In relation to the possible need for intervention by the National Bank of Angola (BNA), the economist said that the Angolan central bank “has mainly tried to purge the kwanzas” via its intervention in the money market.
He said that the BNA’s measure “is not the most ideal,” believing it to be the possible measure given the inability to increase the supply of foreign currency.
“But it is a measure that limits imports and deepens the shortage of consumer goods, further fuelling price rises,” he noted.
“There are those who say that in the short term, the Treasury should go to the international markets and borrow to raise foreign exchange and feed the foreign exchange market, stabilise the exchange rate and inhibit so-called imported inflation,” he pointed out.
And on the other it allows the supply of goods to adjust to the level of current demand.
But, he said, “it is a measure that solves the short term, but may endanger the sustainability of public finances in the medium and long term,” Vunge concluded.
Lusa
