Ghana’s economy downgraded due to overall risk and lost of confidence — Prof. Gatsi

Ghana’s sovereign credit rating has been downgraded to B- with negative outlook.

Prof John Gatsi speaking to Israel Laryea on Joynews explained that it 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.

According to him, this is due to overall risk of the economy. He said confidence in the Ghanaian economy has deteriorated and called on the authorities to prioritize both expenditure and borrowing to ensure only productive expenditure is allowed to extricate the economy from inordinate expenditure.

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

He argues that the international reserve position 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. That in a debt distress era , the country can’t rely on what is not available.

Prof. Gatsi told Israel Laryea that the downgrade does not stop Ghana 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," he stated.

He stressed that the situation is precarious because the risk of the economy is not limited to debt distress alone , there has been observable weak policy response to the issues since the middle of 2021.

Prof. Gatsi opined that expectation is very important in economic management and the policy choices to address fundamental problems 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.