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Fitch downgrade of Ghana due to overall risk and lost of confidence

Ghana’s sovereign credit rating downgrade to B- with negative outlook is a signal to investors that the credit worthiness of the country is uncertain and appearance on the capital market will attract high cost to cater for the high risk of lending to Ghana, says Professor John Gatsi of the University of Cape Coast.

Professor Gatsi told JoyNews that the downgrade by Fitch Ratings is also because confidence in the Ghanaian economy has deteriorated. He called on government to prioritize both expenditure and borrowing to ensure that only productive expenditure is allowed. 

“This will extricate the economy from inordinate expenditure, he noted.

Professor Gatsi pointed out that Ghana is paying punitively for joking with debt management during the pre- pandemic period and using COVID-19 as excuse to borrow outside the limit of fiscal indicators.

He also argued that the international reserve position of the country is fragile as critical components of the reserve such as the heritage and stabilization funds for example are not available for use per the petroleum revenue management rules.

Fitch downgraded Ghana to ‘B-‘, outlook negative on Tuesday. The rating agency forecasts that “Ghana will face approximately USD2.7 billion (3.3% of GDP) in sovereign external interest service and amortisation payments in 2022.”

Professor Gatsi says in a debt distress era, the country cannot rely on what is not available. He however explained that the downgrade does not stop the country from attempting to borrow from the capital market, except that the cost of borrowing will be inimical to sound debt management principles and undermine real growth of the economy.

The interest payment engagement is worse even on the domestic front as both Bank of Ghana’s policy rate and lending rates are mimicking recent inflation trends.

The situation is precarious, he said, because the risk of the economy is not limited to debt distress alone but also an observable weak policy response to the issues since the middle of 2021.

Professor Gatsi added that expectation is very important in economic management and once the expectation about fiscal consolidation is negative, the country automatically becomes unattractive unless the country is willing to pay risk premium to investors.

He advised the managers of the country’s economy to quickly prioritize measures to help restore the needed confidence.

Story Credit: John Gatsi Facebook Page.

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