CDB reprofiles $13.6 billion of outstanding debt for Government of Angola in December 2020 (Linked to Record ID#66847)

Project narrative

In December 2020, the China Development Bank (CDB) and the Ministry of Finance of Angola entered into an agreement to reprofile multiple loan agreements that they had previously signed, including a $15 billion loan agreement from December 2015 (captured via Record ID#66847). The December 2020 agreement included (i) a three-year deferral of principal payments; and (ii) repayment of deferred principal falling due in 2020H2–2023H1 over seven years after the grace period, with some additional modest relief of principal in 2024–25. Under the December 2020 debt reprofiling agreement with CDB, the Government of Angola also agreed to use the outstanding cash balance in an escrow account — known as the Debt Service Reserve Account (DSRA) — to make interest payments to the CDB between 2020 to 2022, which it expected would bring the DSRA balance to nearly zero by mid-2022. However, under the terms of the debt reprofiling agreement, the parties agreed that the borrower would need to replenish the DSRA to approximately $1.5 billion (the minimum cash balance previously agreed upon by the lender and borrower) by 2023. However, in anticipation of the escrow account balance being depleted to nearly zero by mid-2022, CDB demanded that the borrower replenish the account to $1.5 billion by 2023. The Government of Angola met this escrow account replenishment condition. Then, in 2023, the Government of Angola was scheduled to resume principal payments to CDB under the terms of the reprofiling agreement. However, according to the Financial Times, the resumption of principal payments 'exacerbated a sharp economic downturn in Angola’s economy and hit its currency, the kwanza.' On March 19, 2024, CDB and Angola's Ministry of Finance amended the debt reprofiling agreement (ahead of a $1.7 billion scheduled repayment in late-March 2024). CDB required Angola's Ministry of Finance, under the terms of the amended agreement, to deposit more than $1.5 billion in the cash collateral (escrow) account when the international price of oil increased to more than $60 a barrel. However, CDB allowed Angola's Ministry of Finance to use any surplus funding in the cash collateral (escrow) account -- above the $1.5 billion minimum balance requirement -- to be used for interest payments. At the time that the amended agreement was signed, Angola's Ministry of Finance reported it was able to make additional monthly interest payments to CDB worth $150 million to $200 million, thereby allowing Angola to pay down its debt to CDB on an accelerated schedule. Then, in a December 2024 bond prospectus, the Government of Angola disclosed that the amended agreement allowed for 'the prepayment of debt service, so that prepaid amounts would reduce subsequent debt service, in addition to only reducing payments at maturity. The repayment schedule otherwise remains unaltered. In May 2024, Angola and the CDB agreed for Angola to prepay debts scheduled to mature in September 2024. As a result, funds held in the escrow were reduced and monthly payments were reduced by between U.S.$150 million and U.S.$200 million.' Then, in August 2024, Angola's Finance Minister Vera Daves de Sousa announced that the government might not be able to pay wages to public sector employees for a second consecutive month due to a funding gap caused by a mismatch between revenues and expenditures. Elaborating on this point, she explained that most of the government's revenue was being used to service its external debt obligations, with repayments automatically debited from lender-controlled escrow accounts. She further explained that this mismatch limited the government's ability to build a financial safety net. The Government of Angola’s debt outstanding under various loan agreements with CDB was $13.6 billion as of December 31, 2021, $10.1 billion as of March 1, 2024, and $8.8 billion as of June 30, 2024. The Government of Angola and the Industrial and Commercial Bank of China (ICBC) also reprofiled multiple loans in 2020 and 2021 (as captured via Record ID#95416). According to the IMF, the reprofiling agreements with CDB and ICBC jointly produced cash flow savings worth $1 billion in 2020, $1.9 billion in 2021, $1.8 billion in 2022, and $200 million in 2023.