Fitch Restores Ghana's B+ Ratings But S&P Remains Adamant on B.

Ghana has secured a B+ in its ratings by renowned international rating agency, Fitch for the country’s robust economic performance and strong growth outlook.

The country also got credit for its record on good governance record and favourable business environment as factors that has underpinned the country’s 'B+' rating by the Fitch Ratings.

The ratings, secured last Friday, comes after a rival agency, S&P, 2010 downgraded the country’s ratings from B+ to B citing lack of clarity in the oil sector, the management of government’s oil revenues as well as the large fiscal deficit.

This rating sparked controversies as analysts, economists and government officials questioned the basis of the downgrade.

Mr Samir Gadio, emerging markets strategist at Standard Bank Plc in London told Bloomberg on August 27, 2010 that the rating reduction was strange and that “a downgrade would have made sense in late 2008 or early 2009 when the fiscal deficit hit 15 per cent” of gross domestic product.”

A deputy Minister of Finance, Mr Seth Terkper in an interview with the Daily Graphic on Tuesday August 31, 2010, also questioned the basis and the reason for a downgrade and explained that the rating agency’s assessment would have been accurate had it come early 2009 or if they had reviewed the country’s projections carefully and preparations for first oil.

The credit rating is S&P’s opinion on the general creditworthiness of a country or institution or the creditworthiness of a country with respect to a particular debt security or other financial obligation. The rating placed Ghana at par with Kenya, Sri Lanka and Bolivia.

But Fitch Rating Agency on the other hand raised Ghana’s long-term issuer default ratings to B+ negating S&P’s B rating and “affirmed Ghana's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B+' with a Stable Outlook and Short-term foreign currency IDR at 'B'. The agency has also affirmed the Country Ceiling at 'B+'”.

According to Fitch, the country’s declining inflation rate has eased government borrowing and budget deficit has declined to 10 per cent from 14.5 per cent in 2008 but warned that Ghana’s ratings could face downward pressure if the government returns to “fiscal mismanagement.”

Fitch insist that Ghana’s ability to maintain the country’s ratings at a ceiling of B+ attests to good governance and demonstrates the capacity of the country to repay external and domestic debt liabilities, thereby, giving confidence to investors accessing sovereign debt opportunities in Ghana.

Fitch Ratings, which forecast Ghana’s growth at an average of 8.6 per cent over the next three years, projects the country’s growth to be boosted by rising oil production and its positive spillover effects on the economy as well as infrastructure spending.

Over the past three years the government has committed itself to significant infrastructural investments in Roads &Transport, Agriculture, Energy, Oil and Gas sectors, among others.

The Oil and Gas sector has been identified by Fitch Rating as a major growth pole which will provide diversification of economic activities.

Oil production is forecasted to rise to 120,000 barrels per day (b/d) in 2013 and is expected to increase further to 600,000 b/d by 2018 according to Ghana National Petroleum Company (GNPC).

The monetisation of Ghana's gas which is expected to begin in 2013 will lower the cost of power and improve competitiveness.

Oil and Gas revenues would also support the country's public and external balance sheets over the medium term.

The statement noted that the cedi which depreciated by 30 per cent in the first half of 2012 appears to have stabilized due in part to Bank of Ghana’s (BOG) policy interventions as well as foreign demand for domestic bond, which was initiated by renowned economist and former Governor of the Bank of Ghana, now vice President of Ghana, Mr Kwesi Amissah-Arthur.

The BOG interventions include the reintroduction of BOG bills to provide additional avenues for cedi investments, revision in the application of the statutory reserve requirement of banks to maintain the mandatory nine per cent reserve requirement on domestic and foreign deposit liabilities in Ghana Cedis only and a provision of 100 per cent cedi cover for vostro balances.

The statement also notes that the revision of the 2012 fiscal deficit from 4.8 per cent of GDP as provided in the 2012 main budget to 6.7 per cent is occasioned by repayment of arrears, 18 per cent public sector wage increases and increased energy subsidies.

As the Ministry of Finance and Economic Planning admits to its delight in this rating, it would be pertinent to point out that the revision of the fiscal deficit from 4.8 per cent of GDP to 6.7 per cent of GDP was effected during the year to accommodate emerging challenges and, therefore, could not be considered as a slippage.

The Ministry has initiated a number of measures to deal with the fiscal risk occasioned by the implementation of the Single Spine Pay Policy.

These measures include the payroll biometric registration exercise which is aimed at cleaning and updating the database of all public service personnel.

Measures have also been put in place to strengthen expenditure management and budgetary control including the commitment from the Presidency to ensure that only budgeted expenditures are accommodated within the 2012 budget appropriation.

The Fitch Rating identified continued strong growth combined with convincing track record of good macroeconomic management and fiscal consolidation as factors which could put upward pressure on the rating.