Fitch has affirmed Ghana’s long-term foreign and local currency issuer default ratings (IDR) at ‘B’ with a negative outlook, as it predicts the country’s economic growth to reduce to 6.1 per cent in 2014, from the 7.1 per cent recorded in 2013.
Fitch has also affirmed Ghana’s short-term foreign currency IDR at ‘B’ and country ceiling at ‘B’. The issue ratings on Ghana’s senior unsecured foreign and local currency bonds have been affirmed at ‘B’.
Key drivers
The affirmation has been buoyed by the country’s raising of $1 billion Eurobond and the annual and the $1.7 billion inflow from the annual Ghana Cocoa Board syndicated loan which have helped to alleviate some short-term pressures on reserves and the currency, the London-New York headquartered rating agency said at its website.
Fitch explained that it put Ghana’s outlook at negative because a lasting reduction in funding pressures for both the fiscal and current account deficits was unlikely until a programme was agreed with the International Monetary Fund (IMF) and a credible deficit reduction strategy was implemented.
The government ended talks with the IMF last week over a fund programme which is not expected in place until next year.
However, Fitch expects negotiations to be protracted, with a deal expected only next year.
“The government will probably seek IMF’s endorsement for the country’s ‘home-grown’ strategy but, given its recent track record, may find the IMF’s likely suggestion of faster fiscal consolidation challenging,” the rating agency said.
Ghana’s negative outlook is also informed by the supplementary budget announced in July, which forecast the budget deficit in 2014 to widen to 8.8 per cent of GDP from the previous target of 8.5 per cent.
“Curtailing current expenditure and arrears, while boosting revenue, remains challenging for the government, as a result Fitch forecasts a deficit of 10.1 per cent of Gross Domestic Product (GDP) for 2014. The magnitude of fiscal consolidation in the coming years will depend on the path of deficit reduction agreed with the IMF,” the statement said.
Deficits
Fitch is also worried that two years of double-digit deficits, combined with a cumulative 45 per cent depreciation of the currency since January 2013, had seen debt jump to 61.7 per cent of GDP in 2013, based on its calculations, from 39 per cent in 2011 – well above the ‘B’ median of 43.7 per cent.
Fitch believes that the country’s weak fiscal and external positions are the key rating weaknesses and are adversely impacting macroeconomic stability and expects GDP growth to moderate to 6.1 per cent in 2014 from 7.1 per cent in 2013, although significant downside risks remain if the country’s fiscal and external challenges intensify.
“Ghana’s weaker growth outlook over the next two years will complicate fiscal consolidation,” it said, but credited the country’s strong governance record and democratic history, highlighted by the peaceful transfer of power in 2012 and respect for judicial due process.
“Ghana’s business environment compares favourably even with ‘BB’ median countries. This is reflected in Ghana’s ability to attract foreign direct investment which, at seven per cent of GDP, is well above Nigeria, Gabon, Zambia, Kenya and Angola.”
