Ghana’s credit-worthiness constrained by high government debt, other factors – Moody’s

DebtThe 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, 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.

By Emmanuel K Dogbevi

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