As another sign of growing international confidence in the Ghanaian economy, Fitch Ratings, the world's third largest rating agency, has upgraded Ghana's sovereign ratings to 'B+'.
Fitch had assigned Ghana identical long-term foreign and local currency “Issuer Default Ratings (IDR) of 'B' with a positive outlook in November 2003. In a February report on Ghana, Fitch says three factors contributed to last year's upgrade: attainment of external debt relief; the absence of public expenditure slippages in the lead up to the 2004 general elections; and the deregulation of subsidised domestic fuel prices.
Higher crude oil prices have added $500m to Ghana's import bill since 2003. It was bad enough to shift Ghana's account balance from 3.3 percent of GDP to a deficit of 3.4 percent of GDP in 2005. In the past, an external shock of this magnitude would have been a near certain precursor of balance of payment difficulties.
Superior to 'B' and even 'BB” medians, Ghana's B+ rating enables the country to contract commercial loans cheaply, since the defaulting risk factor is considered as low. It also helps the private sector in the international credit market.
However, the Fitch report notes that Ghana is still a low income country with a narrow export base and limited foreign direct investment. Export earnings for 2005 amounted to some $2.73bn ($32m above the 2004 level.) This is significantly lower than the $4.25bn of private inward transfers through the banks and finance companies for January to November 2005.
Commenting, however, on Ghana's strengthened credit ratings and its outlook, the Fitch report says, “It is important to remember that they will be the product of extensive debt relief rather than an inherent improvement in sovereign creditworthiness.”
It continues to warn that, Ghana's low export income and FDI receipts mean that “it will remain heavily dependent on external assistance for some time to come.” Ghana now attracts FDI of about $150m a year in conjunction with the extractive industries.
While including political stability and “lengthening track record of macroeconomic stability” as part of Ghana's strengths, the report identifies low income, lengthy structural reform agenda and continuing heavy dependence on official capital inflows, as Ghana's major weaknesses.
Fitch says Ghana is currently in the final stages of the voluntary debt restructuring programme (HIPC) which began in 2001.
HIPC delivered a total debt stock cancellation of about $3.2bn. In addition, the G8 debt relief initiative will mean the IMF, the World Bank and the African Development Bank canceling $4.5bn of Ghana's debt contracted prior to January 1, 2005. The IMF has already approved its share ($383m) and the other institutions are expected to follow suit by mid 2006.
Fitch Ratings is a leading global rating agency which provides the world's credit markets with independent, timely and prospective credit opinions. Fitch Ratings has grown rapidly during the past decade, gaining market presence throughout the world and across all fixed income markets.
Fitch Ratings is dual-headquartered in New York and London, operating offices and joint ventures in more than 50 locations and covering entities in more than 80 countries. Fitch Ratings is a wholly-owned subsidiary of Fimalac, S A., an international business support services group headquartered in Paris, France.