S&P Global affirms Ghana’s credit rating at ‘B-‘ with a stable outlook
Ghana’s long term foreign sovereign credit rating has been affirmed at ‘B-‘ with a stable outlook by S&P Global Ratings.
The rating action by S&P Global follows credit ratings actions carried out by Fitch and Moody’s in which the country’s Long-Term Foreign Currency Issuer Default Rating (IDR) was downgraded by both agencies.
According to S&P Global, Ghana remains constrained by weak public finances, although recent commitments by the governing party to impose a 20% cut to discretionary spending will, under its projections, reduce expenditure by over 1% of GDP during 2022.
“This implies a 2.8 percentage point (ppt) narrowing of the headline cash general government deficit to 9.4% of GDP in 2022, including arrears payments of 0.4% of GDP and energy sector transfers of 1% of GDP (versus the government’s projection of 7.9% of GDP for the overall cash deficit),” it said.
It however, adds that, stepped up fiscal consolidation and solid growth should put debt to GDP on a downward path.
“Ghana’s debt ratio remains acutely vulnerable to exchange rate movements, as well as growth, or terms of trade shocks. External general government debt, including nonresident holdings of domestic debt, is equivalent to 44% of GDP, according to our estimates. An even greater concern is the cost of financing this debt, at an estimated 47% of government revenue (the government’s estimate is lower at 38%), the second highest level of interest spending globally after Sri Lanka,” it added.
The rating agency asserts that, the country’s stable outlook balances high government debt levels and an elevated interest burden against its expectation that government debt to GDP will return to a gradual downward trend as growth recovers and fiscal consolidation proceeds.
We could lower the rating in the next six to 12 months if we see further deterioration of Ghana’s fiscal metrics, either due to recurring wide fiscal deficits or the materialization of contingent liabilities in the financial or energy sectors. Pressure on the ratings could also materialize should external pressure build–for example, because of accelerated nonresident outflows, eroding Ghana’s useable foreign exchange (FX) reserves.
We could raise our ratings should Ghana achieve more substantial budgetary consolidation than our current forecasts imply, without jeopardizing the government’s ability to maintain balanced economic growth. Under this scenario, we would expect policy choices to put net general government debt on a steep downward path, lengthen debt maturities, and lower the cost of refinancing. An improvement in external performance could boost FX reserve levels, improving our external assessment, and leading to a higher rating.
Read details of rating action below: