Standard & Poor’s revises Ghana’s outlook to positive

Standard & Poor’s revises Ghana’s outlook to positive
Source: Ghana| Myjoyonline | George Wiafe | JoyBusiness | Washington DC
Date: 10-10-2017 Time: 01:10:53:pm

Rating agency Standard & Poor’s has revised Ghana’s outlook from stable to positive while affirming its 'B-' long-term and 'B' short-term foreign and local currency sovereign ratings on the country. 

The outlook on the long-term ratings was revised to positive from stable.

In general, a credit rating is used by sovereign wealth funds, pension funds, and other investors to gauge the creditworthiness of a country thus having a big impact on the country's borrowing costs. 

Reasons

According to Standard & Poor’s, the move was influenced by measures that government is currently implementing to strengthen public finances.

“We expect Ghana's new administration to implement numerous measures that would help strengthen public finances from their current very weak level”

It also indicates that the review was guided by the acceleration of Ghana’s economic growth as result of increased oil production, supporting the implementation of the corrective fiscal measure.

The positive outlook reflects that “we could raise the ratings over the next year if Ghana implements and adheres to measures that sustainably alleviate the substantial pressure on public finances if monetary policy transmission materially improves, and if external weaknesses abate” the agency added in a statement issued.

“Our positive outlook reflects several developments, many of which are based on the new administration is tackling the above issues, At the same time, we expect the underlying growth environment to be supportive of their efforts,” the agency added.

It also maintained that related export receipts should help reduce current account deficits and improve foreign exchange reserve levels, particularly as the government's debt re-profiling exercises are leading to additional portfolio inflows.

“We expect the extended credit facility from the International Monetary Fund (IMF) to help support these efforts” it added.

Reasons for keeping Ghana’s ratings at “B-”

Standard & Poor’s in its assessments explained that the 'B-' status was as a result of some issues it had with the country’s finances now, even though it is optimistic of things improving.

“State-Owned Organizations, particularly in the energy sector have a substantial debt stock that we believe could pose a contingent liability to the government. Late payments from this sector have contributed to an accumulation of nonperforming loans (NPLs) in the banking sector,” it said. 

Warnings

Standard and Poor’s, however, maintained they could revise the outlook to stable if Ghana's economic growth is materially lower​ than they expect, “because we would view this as a potential complication for establishing a firm fiscal consolidation path”.

"We could also lower the ratings if domestic or external debt financing conditions worsen, if the fiscal consolidation trend reverses, or if international reserves decline further,” it added.

History 

Standard & Poor's credit rating for Ghana stands at B- with a positive outlook, while Moody's credit rating for Ghana was last set at B3 with a stable outlook. Fitch's credit rating for Ghana was last reported at B with a stable outlook.

For some, this showed that all the rating agencies have adjusted their position on Ghana’s creditworthiness over the past the last 8 months. 

Fitch recently moved the country from negative to positive with Moody’s also taking a similar action. Ghana’s is currently in the 'B' range which is highly speculative.

Implications

The development according to some analysts could impact positively on Ghana’s cost of borrowing as most investors often depend on the assessment of these agencies when they are lending to government. 

The immediate beneficiary of this action could be upcoming energy bond that should be issued before the close of this month.

Speaking to JOYBUSINESS in Washington DC Economist, Professor Godfred Bokpin, said government still needs to do more to sustain is the assessment by working on some of the concerns raised by the rating agency.

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