Following Fitch’s latest downgrade of the country’s credit rating to a ‘CC’, Chief Executive Officer (CEO) at Annan Capital Partners, Roberta Annan, says private businesses will have to brace for more turbulence and tighten their belts as the rating agency’s action compounds the already-existing credit crunch on the market.
Fitch Ratings cut Ghana’s credit assessment further into junk on concerns that the country may restructure public debt as interest costs surge. The rating agency lowered Ghana’s long-term issuer default rating to ‘CC’ – that is, four levels below investment grade, from ‘CCC’.
The assessment signifies a “very high level of credit risk”, where a “default of some kind appears probable”, according to Fitch’s rating scale.
In an interview with B&FT, the CEO of Annan Capital Partners indicated that, by extension, this downgrade will impact cost of credit to the private sector; as the banking sector, a significant holder of government debt securities, will be heavily hit by the debt restructuring if it does happen.
“There is now undoubtedly a strong argument for domestic debt restructuring if there is sufficient policy support to counter systemic risk to the banking sector,” she said.
“Companies are going to have to look for cost savings wherever they can be found. And by that, I do not mean cutting back on investment but channelling whatever capital can be scraped together specifically to invest in the various kinds of local production,” Ms. Annan stated.
She explained that, currently, there is insufficient lending available for the private sector to be able to grow and support the national economy, as available credit is being continually accessed by government – adding that the stifling of growth in the real economy is also putting significant pressure on the cedi, leading to the local currency being devalued by more than 40 percent against its major trading counterpart, the US dollar.
“The unavoidable result of reducing consumer spending due to rising prices,” she noted.
As of mid-2022, the banking industry’s exposure to credit risk moderated marginally in June 2022 relative to the same period of 2021, following a decline in the non-performing loans (NPL) ratio during the review period. The stock of non-performing loans however increased between June 2021 and June 2022, indicating that asset quality risks persisted in the industry.
Accordingly, the industry is projected to further tighten its overall credit stance on loans to enterprises in the coming months; which is expected to apply to all the sub-categories of enterprise loans.
The analyst pointed out that debt restructuring cannot be an end in itself, but must be done as a means of achieving these developments.
“We need to kick-start local production in the sectors where we can be really effective. We have to focus on removing ourselves from a situation wherein so much of our financial resources is going on servicing loans,” Ms. Annan said.
