Analyst questions S&P’s ‘surprise’ credit rating upgrade for Ghana

An Economic Analyst has described Ghana’s credit rating upgrade from B- to B by Standards and Poors (S&P) as a “pleasant surprise.”

Courage Kwesi Boti says although there have been considerable improvements in Ghana’s fiscal front from 2017 to date, the essential markers used by other credit rating agencies – i.e. debt-GDP ratio and debt servicing track record – makes the eventual upgrade by S&P questionable.

“It appears that in this particular rating the major driver has been the advancement we have seen in monetary policy transmission and the ineffectiveness of that transmission so far…but for me, credit rating is really…about [borrowers’] ability to pay, or otherwise, the debt [they owe lenders].

“For me, logically, the [factor] that should weigh more in [credit rating] analysis should be the fiscal exposure because that is where your ability to service that debt could be found. We are talking of things like your debt-to-GDP ratio, what level it is. The higher it is it raises the question of debt sustainability.

“Your fiscal deficit, how much deficit you run each year. In other words how much you need to borrow each year to finance the gap between your revenue and expenditure every year. Your primary balance…those factors determine your ability or otherwise to service the debt. So for S&P to outline all those risks and yet go ahead and improve our rating is a pleasant surprise, yes,” he said.

The credit rating organisation recently raised Ghana’s long-term foreign and local currency sovereign credit ratings to ‘B’ from ‘B-‘.

According to the report released on Friday, the country’s outlook is stable.

“The upgrade reflects our assessment that Ghana’s monetary policy effectiveness has improved, albeit from a low base, and will support the credibility of the inflation-targeting framework over the period,” S&P said in the report.

Explaining further, S&P stated that the country’s improving banking sector stability and lower inflation support their view that the effectiveness and transmission mechanism of Ghana’s monetary policy has improved.

The government has said the rating shows that investors are upbeat about the progress Ghana’s economy is making.


While acknowledging laudable progress on the macroeconomic front under the Nana Addo Dankwa Akufo-Addo administration, Mr Boti stated that S&P’s analysis and final rating of Ghana’s credit seem inconsistent with the known criteria other credit ratings like Fitch and Moody’s use in their analysis with.

“I am not saying this to mean there has not been an improvement. There has been some considerable improvement on the fiscal front from 2017 to date.

“We have seen fiscal deficit, coming down from 9.3% to around 6% last year, we have seen us running a primary surplus for the first time in a long time. We have seen improvements in our current account position. We have seen a lot of improvement on our fiscal front and even though our revenue performance is still a challenge, programmes are being put in place,” he conceded.

But he stressed: “When fiscal risk is actually the determinant of [Ghana’s] ability to service your debt, is monetary gains enough to get an upgrade? That is up for debate.”

Outside inflows

Dr Lord Mensah, a Senior Lecturer at the University of Ghana Business School, wants the government to intensify efforts to include Foreign Direct Investments in building the economy.

“The country needs to leverage on outside inflows for us to build on this economy because the capacity we have in terms of financial resources is very, very minimal, therefore, we will need foreign inflows to build up our economy,” he also said PM Express.

He said he will not question S&P’s rating of Ghana’s economy because it is clear the rating agency factored in progress made by the government to improve FDI to build up the economy.

Rising debt

Government’s rising debt portfolio remains a major source of concern for economists as it prepares to spend GH¢453 million ($103m) to fund the free SHS programme in 2018.

The amount is more than twice the figure it spent on the programme last year, some GHS¢198 million ($45m). The NHIS owes some GH¢1.2 billion to partner clinics and health facilities, a reflection of a heavily under-funded health scheme. Some GH¢560 million will be invested in the famous Planting for Food and Jobs.

Meanwhile, the situation could get worse as the Institute of Fiscal Studies (IFS) has projected that Ghana’s public debt could hit a record GH¢150 billion before the end of 2018.


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