Restoration of Ghana’s B credit rating dependent on its return to the IMF – Fitch Ratings

A return of Ghana’s credit rating from the current B- with a negative outlook to that of B with a stable outlook is dependent on the country’s return to the International Monetary Fund (IMF).

This is according to Jermaine Leonard, Director at Fitch Ratings Sovereign and Lead Analyst for Ghana and Zambia.

Aside the return of the country to the IMF for a programme, a reduction in the country’s current domestic debt levels will also be a key factor for favourable rating by the agency.

According to him, the strengthening of the fiscal economy through fiscal consolidation should be a priority for government going forward.

“On the positive side what things will lead to stabilisation of the rating; a resumption of access to international capital market will be a big one and that will come from an IMF programme or a change in investor sentiments”, he pointed out that.

Over the medium term, he added, “we will be paying attention to the international reserves position and whether Ghana can see a rise in non-debt creating inflows like FDIs [Foreign Direct Investments]. We will also be paying attention to whether the government can implement its fiscal consolidation plan and put public sector debt on a downward path.”

Again, Mr. Leonard, said the reserve level of the country is an important measure of external liquidity.

“In terms of negative rate sensitivities, here again the reserve level will be important as a measure of external liquidity. And we will also be watching the government’s ability to source new external financing with which to me is debt servicing obligations.”

“Also, we will be paying attention to the level of fiscal consolidation that the government can achieve along with any stress in the domestic market”, he mentioned.

Fitch downgrades Ghana’s credit rating from B to B-

International ratings agency, Fitch, downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B- ‘from ‘B’ with a negative outlook in January 2022..

The downgrade of Ghana’s IDRs and Negative Outlook, the ratings agency said, reflected the sovereign’s loss of access to international capital markets in the second-half of 2021, following a pandemic-related [COVID-19] surge in government debt.

Fitch in a report said, “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.”

Source: norvanreports