Ghana: the latest African country to suffer a negative outlook from rating agencies

Good economic governance will be the key to success after Ghana's disclosure of unreported expenditure and the resulting failure to hit the 2016 fiscal deficit target highlighted substantial risk to the country's public finances, said Fitch Ratings, as it gave the country a negative outlook on its B sovereign rating. Earlier this week, Fitch affirmed Zambia's long-term foreign and local currency issuer default ratings (IDRs) at B with negative outlook, following the country’s “persistent fiscal deficits” and structural constraints. It explained: “Zambia's B IDRs reflect a combination of the country's persistent fiscal deficits, which have led to a doubling of the general government debt ratio over the past five years, and structural constraints that keep economic growth below potential.” Again, this time with Ghana, Fitch pointed to public finances as an important ratings weakness, but it said: “We think the new government is committed to fiscal adjustment under Ghana's International Monetary Fund programme.” The negative outlook on Ghana's B sovereign rating reflects the risk of fiscal slippage around Ghana's elections. Fitch reported: “New finance minister Ken Ofori-Atta said in early February that Ghana's 2016 deficit would be close to ‘double digits’. The wider deficit is due to newly discovered expenditures and undisclosed arrears at government ministries of around GHS7bn ($1.6bn). Technical difficulties at Ghana's Jubilee oil field also contributed to underperforming revenues. “We had forecast a 2016 deficit of 5% of GDP, although Ghana's track record of large budget deficits, running up arrears, and fiscal slippage around elections, meant that risks to our forecast were heavily weighted to a wider deficit. The new revelations imply that government debt was around 74% of GDP in 2016, rather than our previous estimate of 69%.” On the positive side, Fitch believes that the New Patriotic Party government formed following last December's presidential election was likely to relaunch fiscal consolidation efforts. Measures such as increased VAT, a petroleum tax and stronger payroll controls caused the deficit to fall sharply in 2015 (to 6.3% of GDP, from 10.2% in 2014). President Nana Akufo-Addo said in his first state of the nation address on Tuesday that his new government would significantly reduce the deficit this year. However, Fitch warned: “The new government's biggest challenges will be enforcing spending controls at the line ministries and improving revenue collection, in our view. Mr Ofori-Atta said when he assumed office on 30 January that he was ‘committed to cleaning up our public finances, managing the enormous debt... to create the needed fiscal space [to] invest in critical infrastructure and empower the private sector to create jobs’. “The Finance Ministry said this month that it would ‘rationalise public expenditures, strengthen contract management and realign statutory funds to priority projects’ and was ‘committed to ensuring fiscal discipline and good economic governance, focusing on transparent and accountable use of public resources’ in line with the Public Financial Management law passed last year.”

Ghana: the latest African country to suffer a negative outlook from rating agencies

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