The credit ratings agency, Moody’s says several factors including high
government debt constrain Ghana’s credit-worthiness.
In a report issued Thursday June 4, 2015 and copied to
ghanabusinessnews.com, Moody’s says Ghana’s high debt burden, reduced debt
affordability and large gross borrowing requirements are among the key credit
constraints reflected in its B3 rating with a negative outlook.
In March 2015, Moody’s downgraded Ghana’s credit-worthiness from B2 to
B3 with a negative outlook. The downgrade, Moody’s said was firstly driven by
the country’s deteriorating fiscal strength as reflected in the significant
increase in the government debt ratio to an estimated 67.2% of GDP in 2014 from
54.8% in 2013, driven by the large fiscal deficit at 9.4% in 2014, and adverse
debt dynamics fueled by high domestic interest rates and currency depreciation
against the US dollar.
According to Moody’s the concurrence of economic headwinds and adverse
commodity export developments amid a sustained depreciation of the local
currency, the cedi against the US dollar increase the risk that Ghana’s adverse
debt dynamics will persist.
The report, which is an update to the markets does not constitute a
rating action, Moody’s explains.
“Ghana’s debt affordability is among the weakest of all the sovereigns
that Moody’s rates, with annual interest payments amounting to almost a third
of revenues in 2014,” Elisa Parisi-Capone, Assistant Vice President — Analyst
and a co-author of the report, was quoted as saying in a press release.
“Ghana’s fiscal consolidation efforts are taking place in the context
of a slow growth environment which dampens revenue generation capacity,” he
adds.
The report notes that Ghana’s government debt ratio reached an
estimated 67.7% of GDP in 2014, from 54.8% in 2013, driven by a large fiscal
deficit of 9.4% in 2014, high domestic interest rates and the weakening of the
local cedi currency against the US dollar.
However, Moody’s assessment of Ghana’s institutional strength balances
its strong record of democratic governance and political stability against
public financial management challenges in form of arrears accruals and deficit
monetization over the past few years.
“That said, first quarter 2015 budget execution data are well within
target,” it says.
Moody’s says it expects Ghana’s real economy to grow below potential
until 2017, before picking up after new oil production from the TEN oil field
and as the government tackles structural imbalances guided by the
recently-signed IMF Extended Credit Facility.
Moody’s warns that, delays in fiscal consolidation and a sustained fall
in oil or gold prices that further weakens fiscal revenues and export receipts
could put downward pressure on Ghana’s sovereign rating.
“Further pressure on the rating could stem from a failure to resolve
the country’s ongoing energy shortages or a sustained loss of market access,”
the report says.
The report also suggests that the outlook on Ghana’s sovereign rating
could return to stable if accelerated and sustained fiscal consolidation were
to stabilize the government’s debt burden and improve affordability.
“Further positive factors would include stronger inflows of foreign direct
investment as a source of funding for power and infrastructure improvements and
a strengthening of Ghana’s foreign exchange and fiscal reserves,” it says.
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