Rating agency Fitch has affirmed Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with the economic outlook at stable.
The affirmation of the ‘B’ rating reflects Fitch’s expectation of a swift recovery after the coronavirus pandemic shock and the availability of additional fiscal and external financing options to the sovereign.
This comes a day after Moody’s downgraded Ghana’s economy from positive to negative.
According to Fitch, there is balanced against the risk that a deeper and longer economic shock will result in worsening fiscal and external debt metrics.
It said the coronavirus crisis will cause a shock to Ghana’s near-term growth and fiscal outturns.
“Public finances are already a rating weakness, as Ghana has a track record of fiscal slippage around elections and deficiencies in public financial management (PFM) that weakened the government’s ability to meet fiscal targets.
“In the years following the 2016 election, the government passed the Fiscal Responsibility Act, which caps the targeted fiscal deficit at 5% of GDP, along with a number of PFM reforms, which helped lower government deficits on a commitment basis”, it emphasised.
Fitch now forecasts the general government cash deficit to widen from an estimated 7.6% of GDP in 2019 to above 10% in 2020.
The 2020 cash deficit includes approximately 2.8% of GDP in arrears clearance and the realisation of contingent liabilities from the financial and energy sectors.
Continuing, it said “We expect that the fiscal deficit will narrow in 2021, supported by stronger growth and fewer materialising contingent liabilities. However, the December 2020 elections heighten risks of additional fiscal slippage this year and of possible post-election reversal of the 5% deficit cap and PFM reforms.”
Fitch estimates Ghana’s total 2020 financing requirement, including debt amortisation, at approximately GHS78 billion or 21% of GDP.
The issuance of US$3 billion (4.9% of GDP) in Eurobonds in January 2020, before the COVID-19 crisis effectively shut many emerging markets out of international capital markets, allowed the government to meet a significant portion of its financing needs.
The widening of the fiscal deficit will mean that the financing requirement will be approximately 3% of GDP higher than what was programmed in the 2020 budget.
To meet the extra financing needs, Ghana has come to an agreement with the IMF on a Rapid Credit Facility that will disburse US$1 billion (1.6% of GDP) and the government expects an additional USD300 million (0.5% of GDP) from the World Bank.
source: independent Ghana