Fitch Ratings has affirmed Ghana’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B’ with negative outlooks.
Ghana’s short-term foreign currency IDR was rated ‘B’ and Country Ceiling at ‘B’, according to the latest Fitch Ratings. The issue ratings on Ghana’s senior unsecured foreign and local currency bonds have been affirmed at ‘B’ as well.
The rating body said what informed its decision were a recent Eurobond (USD1bn) and the annual Ghana Coco Board syndicated loan (USD1.7bn) which have alleviated some short-term pressures on reserves and the Ghana Cedi.
Fitch believes a lasting reduction in funding pressures, for both the fiscal and current account deficits, is implausible until an IMF programme is agreed. Ghana concluded first round of talks with the Bretton Wood institution Friday. However, Fitch expects negotiations to be protracted with a deal expected only next year. The government will probably seek IMF’s endorsement for the country’s ‘home-grown’ strategy, but given its recent track record, may find the IMF’s likely suggestion of faster fiscal consolidation challenging.
Notwithstanding these risks, Fitch expects a programme will likely be agreed. The supplementary budget announced in July predicted deficit in 2014 to widen to 8.8% of GDP from 8.5%.
Fitch forecasts the current account deficit will narrow to 10.1% of GDP in 2014 from 12% in 2013, due to falling imports as the sharp depreciation of the Ghanaian cedi suppresses import demand. The onset of domestic gas production from the Jubilee oil field, which will offset more expensive crude oil imports used in power plants, could improve the outlook for the current account deficit more than forecast. Ghana’s weak fiscal and external positions are the key rating weaknesses and are adversely impacting macro-economic stability.
Fitch expects GDP growth to moderate to 6.1% in 2014 from 7.1% in 2013, although significant downside risks remain if Ghana’s fiscal and external challenges intensify. Ghana’s weaker growth outlook over the next two years will complicate fiscal consolidation. The ratings are supported by Ghana’s strong governance record and democratic history, highlighted by the peaceful transfer of power in 2012 and respect for judicial due process.
Ghana’s business environment compares favourably even with ‘BB’ median countries. This is reflected in Ghana’s ability to attract foreign direct investment, which at 7% of GDP is well above Nigeria, Gabon, Zambia, Kenya and Angola.
