Moody’s Slashes Ghana’s Sovereign Rating

Seth Terkper
Ghana’s sovereign rating has been reduced from B1 to  B2  by Moody’s Investors Service, an international rating agency.

The agency attributed the development to the country’s rising debt burden, deteriorating debt affordability and wide external imbalances, among others.

The agency also changed Ghana’s foreign-currency bond ceiling to BA3 from BA2 and the foreign-currency deposit ceiling to B3 from B2.

The local currency bond and deposit country ceilings remain unchanged at BA2.

Moody’s announced that it expected Ghana’s public debt to exceed 65 percent of GDP by the end of 2015 from 55.7 percent in 2013 as a result of rising interest expenses compared to government revenues.

It said high fiscal deficit was the main cause of the increasing debt ratio.

Moreover, Moody’s said it anticipated that any fiscal consolidation from double-digit deficits will be slow over the forecast horizon in view of rising interest payments, the clearance of arrears and the elections scheduled for 2016 (i.e., expenditure and the electoral cycle are highly correlated).

‘These factors counteract the revenue-enhancing measures introduced by the government in 2013 and constrain the effectiveness of the government’s efforts to reduce the wage bill as a percentage of tax revenues to 35 percent by 2017 from above 50 percent at present.

‘Similarly, interest payments have increased significantly over the past year to 23 percent of revenues in 2013 from 14 percent in 2012, which places Ghana in the 95th percentile among all rated sovereigns by Moody’s on this metric of fiscal stress. Interest payments have continued to rise during the first quarter of 2014, reflecting the high rates on domestic debt.

Domestic debt accounted for slightly less than 50 percent of total public debt at the end of the first quarter of 2014, about one third of which is of short maturity.’

It stated that the strong pressure on the Ghanaian cedi from the weak overall balance of payments position and the above-target inflation of 14.8 percent as at May 2014 reflected a declining stock of international reserves to low levels.

Gross international reserves at the Central Bank at the end of the first quarter of 2014 represented 2.7 months of import cover.

‘In view of falling foreign investor engagement in domestic debt since September 2013 through March 2014 and an already high government exposure of the domestic banking system, Moody’s notes an increased risk of domestic funding pressures once the central bank scales back its funding activities over the remainder of the year.’

Meanwhile, the Ministry of Finance, reacting to the report, has stated that Moody’s rating was based on the same short-term challenges, which government was addressing.

It said short to medium-term prospects for the country remained bright, adding that Government would continue to work hard to ensure that these materialize.

Such optimism by Government comes in the wake of numerous complaints by Ghanaians that the country’s economic situation was negatively affecting them.

By Samuel Boadi

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