Former Finance Minister, Seth Terkper, is warning of further downgrade of Ghana’s credit rating by rating agencies in the next round of review, if the country’s macroeconomic indicators do not improve.
According to him, the government is already struggling to finance the budget due to a number of factors including the inability to meet its Treasury bills auctioning target.
Speaking on the impact of rising inflation on the larger economy with a cross-section of Journalists, Mr. Terkper urged government to take a holistic look at the challenges facing the economy, as the Mid-year Budget Review looms.
“The fact that we are not in the market – external market – because of rising debt and others which are problematic, then it means that financing the budget is becoming a difficulty. And we know already that compensation and interest [rates] were taking most of the budget revenue, and the budget was heavily dependent on debt. So, we need to be clear on what is going on with this”.
“We also know of the depreciating of the cedi which has been an issue for some time now for Bank of Ghana…including inflation which has led the bank [BoG] to intervene in the market in terms of foreign exchange and also begin to increase interest rates which is one of the things the Central Bank uses to fight this. So you can see that there is accumulation of issues that have been arising”, Mr. Terkper reiterated.
“And I must say that it is not a pretty situation to be in with the indicators going down south as they say. Then what it means is that is possible that you may be in for further downgrades by the rating agencies. You know when the next ratings come in”, he further said
Mr. Terkper also expects interest rates to rise further when the Bank of Ghana announces a new policy rate next week, which he says will come as a cost to both government and businesses.
“Now, what we are still concern which one is talking about is inflation which has shot up to 23.6% year-on-year. Month-on-month it is also very high in 29 months or over 2 years, imported inflation that is the inflation related to imports or prices related to imports has also exceeded domestic prices. Now what it means is that as you can see to the correlation I was trying to draw, it means that the external side of the economy is taking a heat.”
On the interim solution to the problem facing the country, Mr. Terkper said “the solution may come with the probability. The most significant solution will come when we do the COCOBOD syndication, but that is a major development that we need to be watching for the 11th month rally”.
Expressing shock about the lack of prudent application of COVID-19 resources, the former Finance Minister said “one would have felt that with the positive development like the heavy inflow of COVID resources that we got from the IMF and other contributors – our own Central Bank – in addition to three oil fields, one would have expected a situation to be much better and this this where the concern lies.”
“Now we also see a situation where the 23.6% which is an average has strived…of the most significance areas that affect particularly low income people being above this average”, he stressed.
In other words, he said “the transportation sector is about 35% – the rate of charge is about 35%, households 28.5% and then you have food and nonalcoholic beverages being 25.6%, which is the area where households patronise heavily.
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