Ghana’s debt ended 2021 at 83% of GDP, as Fitch downgrades country’s credit ratings to B-

Ratings agency Fitch, has stated that Ghana’s debt ended 2021 with an estimated 83% of Gross Domestic Product including approximately 2% of GDP in debt held through the Energy Sector Levy Act special purpose vehicle.
It therefore forecast government debt to remain on an upward path through 2025, but expect debt to grow at a slower pace as the primary deficit narrows in 2022 and 2023. As of September 2021, Ghana’s debt stood at ¢348.1 billion.
“Debt affordability metrics will remain weak. Ghana’s debt constitutes 539% of government revenue, compared with the ‘B’ median of 325%. Interest payments were 44.6% of revenue in 2020 and the ratio is likely to continue rising through 2023, assuming a rising share of domestic debt in total debt in the absence of external financing options” it said.
“Given the slow pace of private sector credit growth and the weak asset quality environment, we expect that the domestic lenders will be able to meet the government’s increased reliance on domestic debt issuance. In 2020, the government placed GHS10 billion (2.7% of GDP) with the Bank of Ghana as an emergency measure. This measure could be repeated in response to additional shocks, but would carry risks to macroeconomic stability” it further said.

Fiscal deficit to narrow to 9.1% of GDP excluding banking sector bailout and energy sector payments.
Fitch forecasts the general government fiscal cash deficit to narrow to 9.1% of GDP in 2022 from 15.1% in 2020 and 12.5% in 2021 including 3% of GDP in domestic arrears clearance and payments related to the state-owned energy sector.
It however said the 2022 deficit would still be more than twice the 2022 ‘B’ median of 4.6% and risk to public finances remain high, adding “the government envisages a deficit including financial and energy sector support of 7.4% in 2022 and 5.5% in 2023, with a fall to below the legal deficit ceiling of 5% in 2024”.
“The government’s fiscal consolidation plans are focused on revenue measures adopted in the 2022 budget, including a new 1.75% e-levy on certain digital transactions and changes to the calculation of certain taxes and import duties. The medium-term fiscal framework envisages that these new revenue measures, together with fading pandemic-related expenditure, will drive an increase in government revenue to 20.0% of GDP in 2022 from an estimated 15.4% in 2021”, it alluded.

Fitch downgrades Ghana’s credit rating to B-

Fitch downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’ with economic outlook negative.
The downgrade of Ghana’s IDRs and Negative Outlook, it said, reflected the sovereign’s loss of access to international capital markets in the second half of 2021, following a COVID-19 pandemic-related surge in government debt.
This comes in the context of uncertainty about the government’s ability to stabilise debt and against a backdrop of tightening global financing conditions.
“In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high interest expenditure to revenue ratio:, it explained.
It however said “Ghana has sufficient liquidity and other available external financing options to cover near-term debt servicing without Eurobond issuance.”
But, “there is a risk that non-resident investors in the local bond market could sell their holdings, particularly if confidence in the government’s fiscal consolidation strategy further weakens, placing downward pressure on its reserves”, it pointed out.