A struggling OPEC member just asked the IMF for help

Angola is turning to the International Monetary Fund for help as it grapples with lower oil prices.

The OPEC member’s Finance Ministry and the IMF announced on Wednesday that the two will begin negotiations on a three-year loan facility next week.

“The request indicates that the Angolan authorities are gradually realising the scale of their country’s economic problems
,” Capital Economics’ John Ashbourne wrote in a note to clients.

The IMF hasn’t yet said how much aid it will to extend. However, Ashbourne wrote that Angola’s external financing requirement could be about $8 billion (or 9% of GDP) this year, “so any package would have to be hefty.”

“An EFF package should reduce the risk of a messy balance of payments crisis. But the fiscal austerity that is likely to accompany any deal supports our view that growth will be painful,” he added. “This supports our view that growth in the country will be very weak.”

Back in 2014, Angola relied on oil for 70% of government revenue and 97% of its export revenue — so lower prices were not exactly a welcome surprise.

In the past year, Angola’s currency lost 35% of its value against the dollar, FX reserves declined to $22 billion from $32 billion, and the government imposed new currency controls, which only helped drive up the cost of key imports, as
RBC Capital Markets’ Helima Croft previously observed. Plus, inflation hit a 10-year high of 20.3% in February.

In his note, Ashbourne also argued that it’s notable that Angola actually reached out to the IMF given its recent history.

Angola “has shunned Western donors in recent years, preferring to rely on Chinese loans. But while President José Eduardo dos Santos visited Beijing in June only last year, his country’s reluctant embrace of IMF may be a sign of the Washington-based lender’s lasting influence in Africa, especially when the going gets tough,” he wrote.

Brent crude is currently trading down 0.60% at 39.60 per barrel.

Screen Shot 2016 04 07 at 9.09.42 AM

NOW WATCH: There’s a terrifying reason why people are warned to stay inside at 5:45 p.m. in parts of Mexico