A struggling OPEC member just asked for help

Thomson ReutersAngolan President José Eduardo dos Santos.

Angola is turning to the International Monetary Fund for help as it grapples with lower oil prices.

The OPEC member’s Finance Ministry and the IMF announced on Wednesday that next week the two would begin negotiations on a three-year loan facility.

“The request indicates that the Angolan authorities are gradually realising the scale of their country’s economic problems,” Capital Economics’ John Ashbourne wrote in a note to clients.

The IMF hasn’t yet said how much aid it will extend. Ashbourne wrote, however, that Angola’s external-financing requirement could be about $8 billion (or 9% of gross domestic product) this year, “so any package would have to be hefty.”

“An EFF package should reduce the risk of a messy balance of payments crisis,” he added. “But the fiscal austerity that is likely to accompany any deal supports our view that growth will be painful. This supports our view that growth in the country will be very weak.”

Back in 2014, Angola relied on oil for 70% of government revenue and 97% of its export revenue — so lower prices were not exactly a welcome surprise.

In the past year, Angola’s currency lost 35% of its value against the dollar, foreign-exchange reserves declined to $22 billion from $32 billion, and the government imposed new currency controls, which only helped drive up the cost of key imports, as RBC Capital Markets’ Helima Croft previously observed. Plus, inflation hit a 10-year high of 20.3% in February.

Ashbourne also argued in his note that it was notable that Angola actually reached out to the IMF, given its recent history.

He wrote that Angola had “shunned Western donors in recent years, preferring to rely on Chinese loans.”

“But while President José Eduardo dos Santos visited Beijing in June only last year,” he added, “his country’s reluctant embrace of IMF may be a sign of the Washington-based lender’s lasting influence in Africa, especially when the going gets tough.”

Brent crude is trading down 0.60% at 39.60 a barrel.

FinViz