Ghana risks further downgrade on slow fiscal deficit cut plan – Fitch

cediFitch has cautioned Ghana that it might suffer further downgrade on its credit outlook as the country’s 2013 budget aims for slower fiscal consolidation than what the rating agency had envisaged.

Finance Minister, Seth Terpker on March 5, 2013 presented the 2013 budget and said the country is targeting 9% deficit of GDP for the fiscal year after it widened to 12.1% in 2012 from an initial target of 4.8% at the start of the year [2012] and a revised target of 6.7% in July.

The deficit has been as a result of sharp wage bill increase, higher interest costs and payment of arrears.

The 2013 budget included measures to improve budget management, public procurement and payroll and treasury management in order to curb the deficit.

But Fitch on March 6, 2013 stated that Ghana’s budget attempts to “partly correct the severe deterioration in the fiscal deficit”. It is also uncertain how effective the government’s budget measures will be at improving fiscal management.

“This will leave the deficit and debt high and fails to dispel downward rating pressure,” Fitch said in an emailed statement copied to

According to the London-based rating agency, Ghanaian authorities now “appear to have moderate ambition and limited scope for a quick correction”.

Fitch expected the government to reduce the 12.1% deficit to 8% in 2013 and 5% in 2014 instead of the 9% in 2013 and 6% in 2014 outlined in the budget.

Fitch is of the view that the slow pace of fiscal consolidation “will prevent a faster narrowing in the current account deficit, which we forecast at 10.2% in 2013” despite rapid GDP growth which the government forecasts at 8% in 2013.

“Failure to stick to the budget’s less-than-ambitious fiscal consolidation plan will further increase concerns about Ghana’s long-term creditworthiness,” it added.

It stated that Ghana’s debt, which was 49.4% of GDP at end-2012 (40.8% at end-2011), will remain high over the next two years. “It is above the ‘B’ category median of 44%,” Fitch added.

“Risks remain to the medium-term fiscal outlook, including persistently high bond yields, continued arrears build-up, and potential further slippage in implementation of the new public salary structure.”

Fitch indicated that weak expenditure control and slower-than-expected revenue growth could also jeopardise consolidation.

The budget deficit increase in the run-up to the December 2012 election showed a serious loss of fiscal control and credibility, according to Fitch who said “this contributed to our revision of the Outlook to Negative in February.”

“The test of the authorities’ commitment to reform will be implementation,” Fitch said.

As it said when Ghana’s Outlook was revised, Fitch noted that “failure to set out and implement a credible consolidation plan and improve expenditure control could lead to a downgrade from the present ‘B+’.”

On the other hand, Fitch said an ambitious but realistic fiscal consolidation plan, evidence that this is being effectively implemented, and reforms to strengthen fiscal control could lead to an Outlook revision to Stable.

By Ekow Quandzie

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