"Dep. Finance Minister attributes credit downgrades to deferment of revenue measures in 2022 budget"

" \n Dep. Finance Minister attributes credit downgrades to deferment of revenue measures in 2022 budget \n \n\n \n Second Deputy Minister for Finance, Abena Osei Asare, has attributed the recent credit downgrade of the country\u2019s creditworthiness by Fitch and S&P Global to the deferment and late implementation of some critical revenue measures in the 2022 budget. \n \n\n \n Key amongst the outlined revenue measures in the 2022 budget which she described as the best revenue measure was the electronic transaction levy which faced stiff opposition from the Minority Caucus in Parliament. \n \n\n \n Speaking on the Business Edition of PM Express aired on JoyNews on Thursday, August 11, 2022, Mrs Osei Asare noted the late implementation of government\u2019s revenue measures affected the confidence of investors in the Ghanaian economy. \n \n\n \n \u201cWe came up with some aggressive targets for our revenues. We're hoping to raise revenues to the tune of about 100 billion cedis, but the deferment or late passage of these revenue measures undermined the credibility of the budget. \n \n\n \n \u201cAnd that is why we are starting to see the credit downgrades because clearly, major revenue measures like the e-levy were having problems with its passage,\u201d she stated. \n \n\n \n \u201cI must say that the downgrades has really affected us, it has affected the confidence in the economy both on the global and domestic front,\u201d she added. \n \n\n \n Speaking further in the interview, the Deputy Finance Minister however averred that, given the recent downgrade of the economy, the government will quickly put in place the necessary measures to regain investor confidence in the economy. \n \n\n \n \u201cWith the passage of the key revenue measures in the budget, we are hoping to quickly put ourselves together and work very hard to continue to pursue our economic recovery policies to make sure that we bring back that confidence that is causing so much speculation and resulting in some of these downgrades,\u201d she remarked. \n \n\n \n Ghana receives another CCC credit downgrade \n \n\n \n Ghana\u2019s Long-Term Foreign Currency Issuer Default Rating has been downgraded to \u2018CCC\u2019 from \u2018B-\u2018 by Fitch Ratings. \n \n\n \n This is the second CCC credit rating downgrading received by the country in a little over a week with the first CCC downgrade coming from Standard and Poor\u2019s Global Ratings. \n \n\n \n The downgrade, Fitch Ratings noted, reflects the deterioration of Ghana\u2019s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity. \n \n\n \n \u201cIn the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022\u201d, it explained. \n \n\n \n The Government of Ghana has requested support from the International Monetary Fund, which is likely to lead to additional financing from the Fund and other multilateral lenders. \n \n\n \n However, Fitch said , \u201cthe government\u2019s high-interest costs and structurally low revenue as a percentage of Gross Domestic Product have increased the likelihood that IMF support would necessitate some form of debt treatment, although this is not our main scenario. \n \n\n \n \u201cThe high-interest burden on local-currency debt also means that the inclusion of a domestic debt treatment cannot be ruled out\u201d. \n \n\n \n Again, Fitch believes that a deal with the IMF is likely within the next six months. \n \n\n \n \u201cWe estimate that a programme could disburse as much as $3 billion and unlock budget support from other multilateral lenders. However, the timing of such a deal is uncertain and would be dependent on the government\u2019s ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics\u201d. \n \n\n \n The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs. \n \n\n \n \u201cWe estimate that a programme could disburse as much as $3 billion and unlock budget support from other multilateral lenders. However, the timing of such a deal is uncertain and would be dependent on the government\u2019s ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics\u201d. \n \n\n \n The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs. \n \n\n \n On tight external debt servicing schedule , Fitch estimates that Ghana faces $2.75 billion of external debt servicing in 2022, including amortisation and interest, and $2.8 billion in 2023. \n \n\n \n \u201cAccess to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government\u201d, it stressed. \n \n\n \n \u201cIn 2022, we expect that the government will meet its external debt obligations, in part, through a combination of a $750 million term loan from the African Export-Import Bank (BBB), $250 million in syndicated loans from international commercial banks, and up to $200 million from the government\u2019s sinking fund. \n \n\n \n \u201cThe 2022 mid-year policy review indicates that the government expects to source the rest from the IMF and other multilateral lenders. In the absence of an approved programme by the end of the year, the government would have to draw more heavily on its international reserves, which were USD7.6 billion, including oil funds and encumbered assets, as of June 2022\u201d, it further pointed out. \n \n\n \n The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs. \n \n\n \n On tight external debt servicing schedule , Fitch estimates that Ghana faces $2.75 billion of external debt servicing in 2022, including amortisation and interest, and $2.8 billion in 2023. \n \n\n \n \u201cAccess to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government\u201d, it stressed. \n \n\n \n \u201cIn 2022, we expect that the government will meet its external debt obligations, in part, through a combination of a $750 million term loan from the African Export-Import Bank (BBB), $250 million in syndicated loans from international commercial banks, and up to $200 million from the government\u2019s sinking fund. \n \n\n \n \u201cThe 2022 mid-year policy review indicates that the government expects to source the rest from the IMF and other multilateral lenders. In the absence of an approved programme by the end of the year, the government would have to draw more heavily on its international reserves, which were USD7.6 billion, including oil funds and encumbered assets, as of June 2022\u201d, it stated. \n \n\n \n Fitch said the government\u2019s high interest costs and low revenue will continue to be impediments to fiscal consolidation efforts. \n \n\n \n The 2022 Budget\u2019s medium-term fiscal framework had envisaged narrowing the deficit to below the existing deficit ceiling of 5% of GDP by 2024. \n \n\n \n The expected consolidation was based on the expiry of pandemic-related expenditure items and a significant increase in domestic revenue, driven by new taxes, including a levy on electronic transactions. \n \n\n \n The rating agency said delays in implementing the new revenue measures have resulted in lower revenue and a larger nominal deficit in half-year 2022 relative to budget forecasts. \n \n\n \n However, the 2022 mid-year fiscal policy review presented in July contains an updated fiscal deficit forecast of 6.6% of GDP compared with the original deficit forecast of 7.4%, owing to an upward revision in nominal GDP. \n \n\n \n \u201cWe forecast the 2022 fiscal deficit at 8.1% of GDP; this is inclusive of energy-sector clean-up costs not contained in the government\u2019s figure. The possibility of new revenue measures could lead to a further shrinkage of deficit in 2023, but the government\u2019s slim majority in parliament could frustrate attempts to raise tax rates or implement new taxes\u201d, Fitch remarked. \n "

"Dep. Finance Minister attributes credit downgrades to deferment of revenue measures in 2022 budget"

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