A $200 million margin call by JPMorgan on Angola’s $1 billion loan has highlighted the risks of unorthodox financing methods African nations have increasingly turned to as their debt burdens grow. This latest move reveals the heavy costs of borrowing for African governments already grappling with soaring debt and political uncertainty.
Angola, one of Africa’s largest oil exporters, is now facing mounting challenges due to the high costs of unconventional financial deals. The African Development Bank reported that the continent’s debt has surpassed $1.8 trillion, with three countries defaulting on sovereign debt in the past four years. As conventional financing options become less accessible, countries like Senegal, Gabon, and Cameroon have resorted to “off-screen” transactions such as private bond placements, often at steeply higher interest rates.
Samir Gadio, head of Africa strategy at Standard Chartered, warned that countries with lower credit ratings are likely to continue turning to these more expensive financing options, especially if access to traditional Eurobond markets remains limited. For example, Senegal’s privately placed bonds last year were issued at nearly 100 basis points higher than its 2031 Eurobond, increasing its debt servicing costs significantly.
Angola’s debt crisis is a stark example of the perilous path many African nations are following. The country entered a Total Return Swap deal with JPMorgan in December 2024, securing $1 billion in loan financing against government-issued dollar bonds. However, the transaction was structured to avoid adding the debt to Angola’s official balance sheet, using the bonds as collateral. When global asset prices dropped in response to U.S. tariffs, Angola’s bond prices plummeted, triggering a $200 million margin call.
The transaction’s vulnerability to market fluctuations has raised alarms about the sustainability of such deals. “The risk with this sort of transaction is that if there is a market shock, then the margin calls could become a burden,” Gadio said.
Despite this, Angola’s Finance Minister Vera Daves de Sousa defended the government’s ability to meet JPMorgan’s demand, describing the payment as a positive sign for investors. However, analysts argue that Angola is already feeling the strain of its debt. Government spending on social services has fallen by 55% since 2015, and half of the country’s budget is now consumed by debt repayments, leaving little room for critical infrastructure projects.
The country’s debt has raised questions about its long-term sustainability. “The government’s debt shows signs of not being sustainable,” said Manuel Neto Costa, a former economy minister. “The interest rates faced by the government have been high, and real GDP growth has been weak.”
In light of the ongoing fiscal strain and a decline in oil prices, Angola has turned to the International Monetary Fund (IMF) for potential relief. However, experts remain skeptical about the country’s ability to manage its growing debt, even with a potential IMF program in place.
David Omojomolo, an Africa economist at Capital Economics, expressed concerns that “sovereign default fears are likely to stay elevated” due to Angola’s poor fiscal fundamentals, despite a possible IMF bailout.
As African nations continue to face soaring debt, unconventional financing arrangements like Angola’s are likely to become more common, but their costs could pose significant long-term challenges.
