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Fitch cuts Angola as oil impact continues

Fitch Ratings on Sept. 23 downgraded Angola's long-termforeign- and local-currency issuer default ratings to B from B+ and affirmedthe country's short-term ratings at B.

The outlooks on the long-term ratings are negative. Fitch alsorevised Angola's country ceiling down to B from B+.

The downgrade reflects the sharp worsening of Angola'smacroeconomic, fiscal and external metrics as the country continues to sufferthe effects of a severe oil shock, given that oil accounts for about 50% of thegovernment's revenue. The lack of liquidity has adversely affected non-oilsectors, most of which heavily rely on imports.

Fitch noted that the Angolan government has chosen tofinance its deficits mainly through increasing debt instead of drawing on itsfiscal buffers, with public debt poised to reach nearly 60% of GDP by the endof 2016.

Meanwhile, the banking sector continues to face achallenging operating environment, with the nonperforming-loan ratio expectedto rise from 18% in the first quarter as debtors with outstandingforeign-currency loans struggle to meet commitments amid currency depreciationand liquidity restraints. Other areas of concern are Angolan banks' risingexposure to domestic public debt and the closure of foreign-exchange channelswith international banks.

Given the negative outlook, Fitch does not currentlyanticipate developments with a material likelihood of leading to an upgrade ofAngola's ratings.