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Fitch Revises
Ghana 's Outlook to Negative
Masahudu Ankiilu Kunateh, Ghanadot
Accra, March 11, Ghanadot - Fitch Ratings has revised the
Outlook on the Long-term foreign and local currency Issuer
Default Ratings (IDRs) of the Republic of Ghana from
"Stable" to Negative this past Tuesday.
At the same time, Fitch has also affirmed the Long-term
foreign and local currency IDRs and the Country Ceiling at
'B+', and affirmed the Short-term IDR at 'B'.
"The revision of the Outlook on Ghana 's ratings to negative
reflects new data pointing to twin fiscal and current
account deficits of 15% and 24% of Gross Domestic Product
(GDP) respectively in 2008 and double-digit inflation.
The magnitude of these macroeconomic imbalances leaves Ghana
poorly placed to navigate adverse global economic conditions
and presents Ghana 's newly elected National Democratic
Congress (NDC) government with some formidable challenges,"
says Paul Rawkins, Senior Director in Fitch's London-based
sovereign rating team.
As
one of the first countries in sub-Saharan Africa to champion
the cause of structural reform, Ghana continues to enjoy a
reservoir of goodwill among the international community,
while the smooth transition of power in the 2008
presidential/parliamentary elections, the second since 2000,
has cemented the country's reputation as one of the few
genuinely functioning democracies in Africa .
Parallels drawn by commentators between the dire state of
the economy at the end of the 1990s and 2008 in Ghana are
somewhat overdone; nonetheless, left unaddressed, Fitch
believes that current imbalances could rapidly erode the
benefits Ghana has gained from external debt relief.
External shocks have played their part in derailing Ghana 's
relatively short track record of macroeconomic stability,
but fiscal deterioration has been evident since 2006 with
fiscal outcomes far in excess of budgeted shortfalls.
Revenues were broadly on target in 2008, but expenditure
overran by 24% reflecting higher wages and salaries,
increased energy subsidies and pre-election spending.
Public debt rose to an estimated 56% of GDP in 2008 - twice
the peer group median - from a low of 37% in 2006. Fiscal
funding was met from a drawdown of the proceeds from a
sovereign bond issued in 2007, privatisation receipts and
increased domestic debt issuance. Rising inflation has
shortened investors' horizons and the share of short-dated
paper in the outstanding stock of government securities had
risen to 46% by end-2008 from 20% at end-2007, raising
roll-over risks significantly.
With the economy displaying clear signs of overheating -
annual credit growth was running at 44% in 2008 and
inflation rose to 19.9% year-on-year in January 2009 - the
Bank of Ghana raised interest rates to 18.5% on 24 February.
Fitch expects tighter monetary policy to be matched by
fiscal retrenchment: the 2009 budget is due to be announced
within the next two weeks.
Nonetheless, it will take time to rebuild a track record of
fiscal discipline and the 2009 fiscal deficit is unlikely to
fall much below 8-9% of GDP without real expenditure
constraint. In the absence of private capital inflows on the
scale of 2008, Ghana will have to revisit more traditional
sources of funding from bilateral and multilateral
institutions, coupled with higher domestic borrowing.
However, the new NDC administration's mandate is weak - it
holds only 114 out of 228 parliamentary seats - potentially
complicating its pursuit of macroeconomic stabilisation.
Fitch acknowledges that the recent discovery of oil in Ghana
, if properly managed, could enhance sovereign
creditworthiness over time. However, considerable
uncertainty surrounds the timing of production start-up -
early indications point to late 2010 - and the agency
cautions against continued fiscal laxity in anticipation of
new oil-related revenues.
In
the near term, Ghana is facing tight fiscal financing
constraints, exacerbated by the global credit crunch, while
a weak balance of payments threatens to put further downward
pressure on its currency and international reserves.
Stronger fiscal discipline will be essential if Ghana 's
sovereign creditworthiness is not to be put at greater risk.
Ghanadot
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