Economist Caution Against Moody’s Rating

Finance Minister Seth Terkper

A UK-based rating agency, Moody's Investors Service, fortnight ago released a report rating the Ghanaian Economy B3-, gesticulating stability from negative outlook.

That is, changed Ghana's outlook from a B3 negative to a B3 stable.

However, economic and financial Analysts are urging Ghanaians to be cautiously optimistic about the future prospects of Ghana's economic outlook.

Dr. Lord Mensah, a Lecturer at the Finance Department of the University of Ghana Business School, believed more has to be done to improve on the country's outlook.

Meanwhile, Finance Minister Seth Terkper says the favorable assessment of Ghana's creditworthiness by rating agencies in recent times shows that government is on track in stabilizing the economy.

Moody's and FITCH have all given government a favorable assessment of its ability to pay back on time funds borrowed on the international market.

Moodys in a statement issued on September 23, said it has affirmed Ghana's "issuer and Senior unsecured rating at B3 and changed the outlook to stable from negative."

Another rating agency, FITCH has assigned Ghana's USD750m six-year 9.25% senior unsecured notes a final rating of 'B'.

The final rating replaces the expected rating that Fitch assigned on 1 August 2016.

The key factor that conduit the current impressive rating is in line with Ghana's Long-Term Foreign Currency Issuer Default (IDR), which was affirmed in March 2016 at 'B' with a Negative Outlook.

The rating of the notes is sensitive to changes in Ghana's Long-Term Foreign Currency IDR.

Mr Terkper has noted that the verdict shows that government is on with programs aimed at fast-tracking the stability of the economy.

Mr. Terkper is of the view that, the development could also result in the reduction in the cost of borrowing for the country.

Meanwhile, financial analyst expect this assessment to impact positively on government’s cost of borrowing on the international market.

Dr. Ebenezer Ashley, a Financial Analyst and Dean of Business and Leadership, believes the ratings affirms that, there is indication that the country is on the right track.

Also, Managing Director of Standard Chartered Bank, Kweku Bedu-Addo has noted that, he expect the developments on the Ghana’s credit ratings, to bring some relief to bank exposed to international dealings.

Similarly, President John Mahama, has said, he is upbeat about the country’s economy after Moody’s Investors Service.

According to him, the feat reflects the gains that Ghana is making which signals a positive outlook for the economy.

He said across the world, Ghana has been acknowledged as a rising state among others in the sub-region and enjoys goodwill globally.

“Our country is much respected in the International Community and everybody recognizes that. In my absence we were pleased to hear that Moody’s, credit rating agency has upgraded Ghana. It shows that we’re doing something right and we’re pleased about the way things are happening. Let us continue to work together as one nation, let’s believe in ourselves and I believe that more than the sky is our limit.”

Postulating the rationale behind the favorable rating, the UK-based agency said the first driver for the assignment of a “stable outlook is the significant reduction in the fiscal deficit achieved under the umbrella of the 3-year Extended Credit Facility (ECF) programme since inception in April 2015, with a deficit reduction to 6.3% of GDP in 2015 from 10.2% in 2014.

“The improvement was underpinned by both improved revenue collection and expenditure control, in particular with respect to wages and salaries, and included the repayment of arrears in the amount of 2.4% of GDP.”

The key drivers of the current rating, the agency said are being driven by “Significant fiscal deficit reduction and institutional reform implementation over the past year under the umbrella of the 3-year IMF programme starting April 2015;

“Reduced government liquidity risk on the external side after the successful issuance of a $750 million Eurobond in September earmarked to redeem the remaining $400 million October 2017 Eurobond maturity;

“Improved balance of payments dynamics amid continued development of oil and gas resources via higher foreign direct investment (FDI) inflows, supporting reserve buffers and reduced currency volatility.”

The stable outlook on the B3 rating, Moody added “balances these improvements against Ghana's continuing credit challenges and vulnerabilities, including a high debt burden, very low debt affordability, elevated funding requirements and challenging medium-term international bond maturity profile.”