About Ghana’s B credit rating
Posted on | September 29, 2010 | 7 Comments
Ghana’s ‘B’ rating, a downgrade from its previous ‘B+’ rating by Standards & Poor (S & P) has been received with much skepticism and surprise by stakeholders both within and outside the country. Razia Khan, Regional Head of Research, Africa Standard Chartered Bank, stated that “although Ghana’s challenges are well known, the ratings action just months before first oil is anticipated came as a surprise.” She added that while the fiscal challenges remained, none of the factors sited by S & P were new making it difficult to justify the ratings action.
Ms. Khan said the country’s current account deficit has narrowed, helped by more moderate oil prices and a reduction in domestic subsidies. The managers of the economy, she said, have put in place a number of reforms most recently raiding domestic utility prices substantially, in an effort to key state-owned enterprises closer to full recovery and lessen the influences that had contributed to Ghana’s fiscal deterioration. Standards and Poor cited reduced fiscal flexibility, a lack of clarity in the country’s oil sector and management of government’s oil revenues as contributing factors to this rating.
The Standards and Poor rating however contradicts the ‘B+’ rating given by Fitch, an alternate rating agency which has revised Ghana’s outlook as stable .Veronica Kalema, Director in Fitch’s sovereign group, agrees with Ms. Khan that Ghana’s macroeconomic stability has been restored by tight monetary and fiscal policy and the use of IMF funding for balance of payment support which stabilizes the currency in this fourth quarter. Fitch notes that macroeconomic stability has been underpinned by a significant improvement in Ghana’s twin deficits (including arrears on payments) narrowed to 10 percent from 14.5 percent.
The fall in inflation has meanwhile facilitated a cut in interest rates by 500 basis points since November 2009, helping reduce government borrowing costs and will eventually support private sector development as commercial interest rates fall. According to Fitch, Ghana’s Petroleum Management Bill, due to be adopted in December this year, provides for transparency and accountability and for savings into the proposed stabilization fund and heritage fund, will ease concerns about the management of oil revenues.
However, Fitch warns that the key weakness to Ghana’s credit worthiness is the public finance problem that has dogged Government for several decades. Public finance has been a recurrent source of macroeconomic instability. Budget deficit peaked at almost 15 percent in 2008, in the election run-up and placed the country’s debt ratio at over 60 percent of GDP. This is among the highest in any country in Fitch’s ‘B’ category. Fitch notes that despite cost cutting measures of government, fiscal consolidation has been slower in 2010 than the previous year,”the deficit will probably still exceed 8 percent”, Fitch warns.
Comments
7 Responses to “About Ghana’s B credit rating”
Leave a Reply
- Local Participation in Oil & Gas industry
- About Ghana’s B credit rating
- The plight of the tenant in Ghana
- Ashesi Alumni on the World Affairs Council
- Ghana hosts Getenergy for West Africa
October 23rd, 2010 @ 1:32 pm
I just signed up to your blogs rss feed. Will you post more on this subject?
November 11th, 2010 @ 3:51 pm
Thanks for some quality points there. I am kind of new to online , so I printed this off to put in my file, any better way to go about keeping track of it then printing?
January 18th, 2011 @ 9:30 pm
Good day! I just would like to give an enormous thumbs up for the good information you will have here on this post. I can be coming back to your blog for extra soon.
January 19th, 2011 @ 2:37 pm
Well written, thank you for the post.
January 20th, 2011 @ 8:12 am
WONDERFUL Post.thanks for share..more wait .. …
January 20th, 2011 @ 4:30 pm
I’d have to check with you here. Which isn’t something I often do! I get pleasure from reading a submit that will make folks think. Additionally, thanks for permitting me to comment!
January 20th, 2011 @ 9:46 pm
Wonderful blog! I truly really like the way it? s easy on my eyes also because the Information are well written. I’m questioning how i may be notified when a new post has been created. I’ve subscribed to your rss feed which want to do the trick! Possess a nice day!