Angola: Kwanza dives in March as oil prices sink to 17-year low
March 23, 2020
The Angolan kwanza plunged against the U.S. dollar in mid-March against the backdrop of crashing global crude oil prices and as the increasing economic fallout from the coronavirus pandemic fuels fears of an impending global recession. On 20 March, the kwanza ended the day at 518.4 per USD, depreciating 5.7% over the same day in February. Furthermore, the currency was 7.6% lower on a year-to-date basis and was down 39.0% in year-on-year terms.
Rapidly deteriorating external dynamics have weighed heavily on the kwanza in recent weeks. The Angolan Cabinda crude oil price sunk to a near 17-year low of USD 24.2 pb on 18 March owing to plummeting global oil demand amid a coronavirus-related downturn in economic activity and soaring global oil supply due to the ongoing price war between Saudi Arabia and Russia. Sliding oil revenues—oil accounts for the lion’s share of Angolan exports—dented foreign currency supply in Angola and sparked fears of a severe economic recession in the months ahead, thus placing marked downward pressure on the kwanza.
Severe economic turbulence is expected in the months ahead as the fast-spreading Covid-19 increasingly weighs on domestic and external economic activity, thus keeping global crude prices subdued. The authorities seem to have few options left to support the currency as its foreign currency reserves come under strain and the Central Bank’s interest rates remains among of the highest in the region.
Author: Almanas Stanapedis, Economist