Angola: Kwanza continued to depreciate in August due to Covid-19 and low oil prices
August 24, 2020
On 21 August, the Angolan kwanza traded at AOA 589.0 per USD. This marked a 5.4% month-on-month depreciation, while the currency was down a staggering 38.9% year-on-year and 18.7% year-to-date.
The steep depreciation reflected the twin impact of Covid-19 and low oil prices, which are dealing a blow to government finances and hurting investor sentiment. The pandemic has hammered the domestic economy, driving a fall in government revenue. Moreover, the impact of the health crisis on the global economy has weighed on prices and depressed demand for oil—a key export for Angola—further weakening the government’s fiscal position. Although crude Cabinda oil prices have recovered some lost ground since May, the price level was still down by over a third year-on-year in the January–July period, weighing heavily on the currency.
Looking ahead, prospects for the currency remain grim. The kwanza is expected to continue to depreciate against the USD this year amid lingering risk aversion over Covid-19 fears, capital outflows due to a steep twin deficit, and uncertainty over the global economic recovery and oil demand.
Author: Jan Lammersen, Economist