Fitch’s negative downgrade will have enormous repercussions – Lord Mensah

An economist with the University of Ghana Business School (UGBS), Dr. Lord Mensah has said that the downgrade of Ghana’s economic outlook from stable to negative by International rating firm, Fitch, is not surprising.

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.

“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”.

In an interview on the Morning Starr on Wednesday, the University of Ghana Lecturer said the repercussions of the downgrade are enormous and can greatly affect investor confidence.

“From where I sit I’m not surprised at all. If you run across the continent, you’ll realize that most countries will be downgraded. Let’s not forget our debt level as indicated in the report. This report is a way of giving the investor more projections about our economy…If you look at the debt level and you consider our total debt stock, if you add all that, you’ll realize that we’re going beyond the 80% threshold.”

“The repercussions are enormous and massive. That’s what happens your expenditure is more than your revenue generation. Apart from that, you reduce investor confidence in your economy because no investor would want to put his money in an environment that’s not conducive,” Dr. Mensah told Morning Starr host Francis Abban.