Fitch affirms country’s ‘B’ stable outlook 


…says economy on gradual path to recovery

Global rating agency Fitch has affirmed Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a stable outlook.

The affirmation is contained in Fitch’s October country rating report, which points to a gradual recovery in economic performance and fiscal revenue following the coronavirus pandemic shock; a stabilisation of debt/GDP; and the ready availability of external and domestic financing sources.

This, Fitch notes, is balanced against the risk that post-election fiscal slippages or a weaker economic recovery will worsen fiscal and external debt metrics.

“Fitch believes that Ghana’s liquidity and available financing sources are consistent with the ‘B’ rating. We estimate government’s 2020 total fiscal financing and debt amortisation needs at approximately US$10.9billion (16% of GDP). Ghana raised US$3billion through Eurobond issuance in February.

“Government will also receive US$1.5billion from the IMF and other official creditors in budget support, and approximately US$700million in project loans for the externally financed portion of capital expenditure. It will also draw down a total of US$210million from the Ghana Petroleum Funds and may draw additional funds from their combined oil savings accounts,” the report read.

“The pandemic has affected Ghana’s domestic economy through lockdowns on its two biggest cities, and the related global shock has impacted trade and financial flows. The largest impact was likely to have been felt in 2Q20, but at -3.2% YoY, the contraction in GDP was less than we had anticipated,” Fitch latest report added.

The biggest reduction was experienced in the extractive sector, which includes oil and gas, and manufacturing; while agriculture, construction and transport recorded positive growth.

Fitch is meanwhile forecasting 2020 growth at 2 percent, returning to 5 percent by 2022; although it believes that low global oil prices will inhibit investment in Ghana’s oil infrastructure and could weigh on medium-term growth. The oil sector had been a major growth contributor over 2017-2019.

On the pandemic shock’s impact on public finances, it said it expects the increased expenditure contained in a revised budget and lower tax revenue to bring the fiscal deficit to 10.5 percent of GDP on a commitment basis – more than twice the 2019 commitment basis deficit of 4.7 percent.

Government, as part of its Mid-Year Budget Review, sought an additional GH¢11billion – 3 percent of forecast 2020 GDP – in COVID-related expenditure. It also projects domestic financing costs to rise by approximately 2 percent of GDP. The revised budget was approved by Parliament along with a request to suspend the fiscal rules contained in the Fiscal Responsibility Act of 2018, which includes a fiscal deficit ceiling of 5 percent of GDP.

Beyond 2020, Fitch is expecting the cash deficit to narrow to 7.1 percent of GDP in 2021 and to 6 percent in 2022, but warned that “a failure to consolidate following the December 2020 presidential election is a key risk to our projections”.

When it comes to the country’s debt stock, the rating agency is predicting debt at 72.8 percent of GDP by end-2020, which includes the outstanding stock of GH¢7.6billion (2.1% of GDP) in Energy Sector Levy Act bonds.

Fitch added that: “We expect debt to continue rising through 2022, although at a slower pace,” while warning that the debt situation could worsen if planned reforms in the energy sector are executed, leading to a build-up of arrears and higher debt.

Government’s 2019 Energy Sector Recovery Programme indicated that sector arrears could reach as much as US$12.5billion by 2023.

“Ghana’s high debt-service burden weighs on its rating. Its 2020 debt/GDP ratio is slightly higher than our forecast ‘B’ median of 67.3 percent. However, we forecast that government debt will reach 530 percent of revenue – much higher than the 336 percent ‘B’ median. Furthermore, interest expense is set to reach 49 percent of government revenue in 2020, four times the ‘B’ median of 12 percent. Ghana’s interest payments will rise in 2020 following greater reliance on the domestic debt market, where interest rates are higher than for foreign-currency debt,” Fitch noted.

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