Fitch downgrades Ghana’s outlook from stable to negative

International Economic rating firm Fitch has downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to negative from stable.

Fitch has affirmed the IDR at ‘B’.

According to the latest Fitch report, the negative rating reflects the significant deterioration in public finances as a result of the Covid-19 pandemic and the delays by the government to roll out its fiscal consolidation efforts.

These developments per the report have reduced Ghana’s ability to absorb further shocks for an extended period. The report also cites the lack of a clear majority in parliament following the December 2020 elections as a factor that increases the risk of fiscal slippages.

The ‘B’ rating reflects the high public debt level and low revenue base, which means that Ghana’s debt affordability metrics will remain markedly weaker than rating peers over the rating horizon. This is balanced against Fitch’s expectation of a recovery in economic performance and stabilization of debt/GDP and the ready availability of external and domestic financing.

“Public finances remain the key rating weakness for Ghana. After achieving a general government deficit on a commitment basis below 5% of GDP in the three years prior to 2020, the deficit widened to 11.5% of GDP following the approval of a mid-year supplementary budget that contained an additional 3% of GDP in COVID-19-related spending,” portions of the report said.

It added: “When arrears clearance and support for the financial and energy sectors are added, the cash deficit reached an estimated 14% of GDP. We forecast a significant fall in the cash deficit to 8.3% of GDP by 2022, but this remains well above the 2022 ‘B’ median of 4.8%. Post-pandemic recovery spending will keep government expenditure high compared with historical levels. We expect a recovery in government revenue, but note that Ghana has structurally low domestic revenue mobilization when compared with peers”.