Moody’s affirms Ghana’s B3 ratings, keeps outlook negative

International ratings agency, Moody’s has affirmed Ghana’s B3 long-term issuer ratings and also kept its economic outlook at negative.

The B3 rating and negative outlook reflect Ghana’s high debt burden that is unlikely to fall rapidly, continued weak debt affordability, high gross borrowing requirements and ongoing liquidity challenges in the face of downside economic, social and financial risks in the aftermath of the coronavirus pandemic.

The rating affirmation also takes into account improving growth prospects, resilient external sector performance and the country’s continued access to domestic and international capital markets, supported by the government’s structural economic reform agenda to improve export competitiveness and broaden the revenue base.

Moody’s in its report said “Ghana’s credit profile is characterised by large gross borrowing requirements that exceed 20 per cent of GDP, as well as persistent weak debt affordability stemming from interest payments rising to over 40 per cent of revenue both of which are among the weakest of sovereigns rated by Moody’s, underpinning its exposure to potential funding shocks.”

Furthermore, it said “both long-standing credit characteristics are the result of a high debt burden financed at relatively high costs and relatively short maturities. These vulnerabilities have been exacerbated by the pandemic.”

It said “The fiscal deficit widened to 13.9 per cent of GDP in 2020 (inclusive of costs associated with the financial sector clean-up and “take or pay” energy contracts), pushing the debt burden beyond 80 per cent of GDP, from 62.6 per cent in 2019.”

The ratings agency said while the government’s most recent budget sets out a plan of fiscal consolidation to reduce the fiscal deficit to 4.8 per cent of GDP by 2024, the longer-term economic and social scarring from the coronavirus shock presented significant challenges to achieving such ambitious targets.

“Moody’s also assumes that the pace of consolidation will be slower, leaving the debt burden above 80 per cent of GDP for the foreseeable future. In the meantime, Ghana will increasingly rely on domestic and international bond issuance to meet deficit financing requirements and eurobond maturities starting 2023 and rising to $1 billion per year 2025-2027, leaving the sovereign exposed to a potential unfavourable turn in investor confidence,” it added.

Moody’s said the downside risks notwithstanding Ghana’s credit profile benefits from strong economic growth potential.

It therefore, expects GDP growth to rise towards six per cent in 2022 and stay around these rates in the medium term in the absence of new shocks.

Meanwhile, Ghana’s external position which has been a credit weakness in the past, has remained relatively stable through the pandemic, denoting greater resilience.

“The current account deficit was stable last year at 2.6 per cent of GDP. Assuming steady commodity prices, Moody’s expects the deficit to remain relatively narrow around three per cent of GDP,” it said.

“Foreign exchange reserves, at four months of imports cover, have been bolstered by the recent eurobond issuance and gold and cocoa production that continues to perform well. Coupled with the ramping up of oil and gas production from the Pecan field, export prospects remain favourable,” it added.

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