The international rating firm, Fitch, says Ghana’s programme with the International Monetary Fund (IMF) has improved its policy credibility.
It said the programme had also improved the country’s commitment to fiscal reforms and access to external financing.
In a statement, it described the decision to deregulate fuel prices as the most significant reform by the government.
However, it said a high degree of uncertainty remained ahead of parliamentary and presidential elections due in late 2016 which might see spending pressures re-emerge as in past electoral cycles.
It said fiscal consolidation efforts remained on track, with the latest data until July 2015 showing a budget deficit of 3.1 percent of Gross Domestic Product (GDP), against a target of four per cent.
“Revenue over-performed, supported by additional tax measures under the IMF programme, while expenditure came in below budget. This was largely due to lower interest costs, underpayment of arrears, social contributions and grants to government units which offset overspending on infrastructure, as well as goods and services,” it said.
The statement said Fitch forecast a cash deficit of 7.8 percent of GDP, slightly higher than the authorities’ target of 7.3 percent but lower than the 10.2 percent deficit recorded in 2014.
“Deficits are somewhat lower on an accruals basis, as the authorities make net repayments of arrears,” it said.
It affirmed the country’s long-term foreign and local currency issuer default ratings (IDR) at ‘B’ with negative outlooks.
It also affirmed Ghana’s short-term foreign currency IDR at ‘B’ and country ceiling at ‘B’. The issued ratings on Ghana’s senior unsecured foreign and local currency bonds had been affirmed at ‘B’.
The statement said government debt jumped from 39.1 percent in 2011 — the year prior to the previous elections — and ensuing fiscal slippage to 70 percent of GDP at the end of 2014
“Ghana’s debt structure has also deteriorated. Foreign currency debt is now 60 per cent of total debt, against less than half in 2011, largely driven by increased non-concessional financing, leaving the country more exposed to a weaker exchange rate,” it said.
It said domestic debt maturities had steadily declined and indicated that high domestic yields and a 60 per cent depreciation in the currency since 2012 had pushed up borrowing costs, with interest payments now accounting for one-third of government revenue — the highest level among Fitch-rated sub-Saharan African sovereigns.
The statement said the cedi had been extremely volatile this year, adding that despite periodic recoveries, downward momentum had persisted, with the currency falling 18 percent against the dollar, as Ghana’s external financing gap remained large.
It said Ghana’s external position was vulnerable, with the current account deficit expected to narrow only slightly to 8.4 percent of GDP in 2015, down from 10 percent in 2014.
It said fiscal and external imbalances, as well as external and domestic shocks, had steadily undermined Ghana’s growth prospects and indicated that Fitch expected growth to moderate to three percent in 2015, against an average of 8.6 percent for the previous five years and well below the ‘B’ median.
Fitch projected that Ghana’s GDP would recover to six per cent in 2017.
That growth, according to the rating agency, would depend on oil production coming on stream, as expected, the continued development of the gold sector and further investment in infrastructure.
