Ghana stands by fiscal plans after rating outlook dips

December 6, 2013 7:42 PM

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Ghana stands by fiscal plans after rating outlook dips

ACCRA: Ghana stands by its fiscal-consolidation plan after Standard & Poor's and Moody's revised their outlook on the country's sovereign credit rating to negative from stable, finance minister Seth Terkper said on Friday.

Terkper reiterated a government statement made last week that the country's medium-term prospects for growth and fiscal and macroeconomic sustainability remained strong.

The government will reduce its budget deficit through revenue mobilisation, rationalising public expenditure and reviewing its financing methods, said the statement.

"Our position is the same," Terkper told Reuters, in a comment that could worry some analysts who want the government of President John Mahama to step up action over a budget deficit that rose to 11.8 percent of GDP in the election year of 2012.

Ghana is considered one of Africa's most dynamic economies because of its stable democracy and rapid growth powered by exports of gold, cocoa and oil. But macroeconomic instability clouds the picture.

In last month's budget, Terkper revised Ghana's 9 percent deficit reduction target for 2013 upward to 10.2 percent but targeted a reduction to 8.5 percent in 2014.

S&P rates Ghana 'B' and Moody's 'B1', both in the speculative grade category. Moody's cited a "a steep deterioration in its (Ghana's) debt and debt-servicing ratios, despite rapid economic growth."

"The negative outlook indicates at least a one-in-three possibility that we could lower the ratings on Ghana within the next 12-18 months, due to its weakening fiscal and external profile," S&P said.

Fitch downgraded Ghana from B+ to B in October because of spending worries and the agency has since said the deficit reduction planned outlined in the budget is not sufficiently aggressive and risks missing next year's target.

Several analysts echo Fitch's concerns. They say the decisions of the ratings agencies should spur the government to adopt a more radical approach, not least to rein in public sector wage growth and expand revenue collection.

"One would hope that it (the ratings decisions) could spur the government into action. Unfortunately, I am not hopeful that this will be the case," said Melissa Verreynne, an economist at NKC Independent Economists in South Africa.

"The government seems to have become complacent due to the prospect of higher revenues from the oil sector over the medium to long term and foreign investors' apparent willingness to hold Ghanaian debt," she said in an email.

The yield on Ghana's benchmark 91-day bill fell to 18.6634 percent at a Nov. 29 auction. The country will target oil production from its offshore Jubilee field of 120,000 barrels per day (bpd) in 2014, according to the budget.

That output is modest compared to other African producers, though the initial lifting of oil in 2010 spurred optimism about the prospects for the country of 25 million and triggered a spike in GDP growth the next year to more than 14 percent.

In its defence, the government says it has taken tough decisions this year by cutting subsidies on utilities and fuel.

The government issued a second Eurobond, worth $750 million, in July, in part to reduce the cost of its debt service and also to pay for infrastructure projects.

Ghana's main opposition party is in transition following defeat in December's election but says the government is not doing enough to rein in spending.

The debt-to-GDP ratio is already above 50 percent and could rise to 60 percent once a multi-billion dollar Chinese loan is fully dispersed, New Patriotic Party finance spokesman Mark Assibey-Yeboah told Reuters.

The government should cut recurrent spending to free money for capital investment and debt service, he said.


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