Ghana: Fitch downgrade will not lead to default on loan repayments – Expert
Financial Expert, Dr. Williams Peprah, says government will not default on the repayment of its loans despite the downgrade of the country’s credit rating to deeper junk status by rating agency, Fitch.
Fitch’s said its decision on Ghana reflects surging interest costs on domestic debt, a prolonged lack of access to Eurobond markets and the increased likelihood that Ghana will pursue a debt restructuring given mounting financing stress.
Speaking to Joy Business, Dr. Peprah, who is an Associate Professor at Andrews University in Michigan, USA said government must however act decisively to reduce further pressures on the economy.
He therefore wants the government to cut its expenditure, both current and capital drastically, in order to settle its interest payments promptly.
“We can mention that, when it comes to the capacity to pay, Ghana is in the position [to repay]. In terms of Ghana’s character, when we’re doing the creditworthiness analysis, we have not defaulted on any of our loans. So this gives the signal that the likelihood of Ghana having the character to default is not very imminent”.
“When it comes to conditions, we know that Ghana is hoping to abide by all conditions. Indeed that is why Ghana is pursuing an International Monetary Fund (IMF) programme to be able to give a bailout in terms of liquidity support so that Ghana will be able to find its feet”.
Dr. Peprah is hopeful an IMF programme will come off by the first quarter of 2023 to calm the financial markets and turn the economy around.
“We’re hoping that this [IMF programme] should come off in the first quarter of 2023; some funds will come from IMF to help the economy to turnaround. But more importantly, this rating though is alarming and disturbing, we may have to build the hope that we’ll be able to turn things around by being disciplined with our expenditure in the country”.
He however pointed out that the review of Ghana’s credit rating from ‘CCC’ to ‘CC’ was expected, though all is not lost.
“The ratings given by Fitch which put Ghana’s long-term currency debt to junk status is very alarming, but it was anticipated. However, if you look at the analysis of how to determine the credit worthiness of Ghana, it is not all that lost.”
“We admit that when it comes to capacity to pay in terms of our debt ratio, it is gone up but it is not too alarming”, he further said.
He alluded that there’s a high probability that government may intend to come out with strategies that would boost revenue collection, “but what we really expect government to do at this time is to reduce its expenditure drastically both capital expenditure and current expenditure to make room for some funds to be able to settle loans that government has taken”.
Rating agency, Fitch, on Friday September 23, 2022, downgraded Ghana’s Long-Term Local – and Foreign-Currency Issuer Default Ratings (IDRs) to ‘CC’ or further junk status.
This is the second time in 2022 that it has downgraded Ghana’s credit worthiness.
It is also coming two days after President Akufo-Addo took a swipe at ratings agencies at a UN Conference for unfairly assessing and rating African countries poorly at a time the global economy was going through difficult period.
