Moody’s rates Ghana’s economy as being in the best shape for investment in a decade Featured

The recent claims by both President Nana Addo Dankwa Akufo-Addo and Vice-President Bawumia about impressive gains in the government’s management of the economy have been confirmed by the latest country rating by Moody’s.

The respected international credit rating agency on Friday reaffirmed Ghana’s credit rating at B3 with an upgraded outlook from stable to positive. This is the best rating Ghana has received from Moody’s in the past decade.

A statement issued by the agency said: “Moody’s Investors Service (Moody’s) has today reaffirmed the Government of Ghana’s long-term issuer and senior unsecured bond ratings at B3 and changed the outlook to positive from stable.”

It further said: “The decision to assign a positive outlook reflects Moody’s rising confidence that the country’s institutions and policy settings will foster improved macroeconomic and fiscal stability over the medium term, in part as a consequence of the reforms implemented under the recent IMF reform programme.

Rising confidence

“Those reforms are beginning to bear fruit, as seen, for example, in the return to primary fiscal surpluses, measures to smooth the debt maturity profile and increasingly sustainable growth prospects.”

According to Moody’s, “Pressures and risks remain, as evidenced by persistent revenue challenges, a potential repeat of pre-election fiscal cycles, and the emergence of significant arrears and further contingent liabilities in the energy sector, all contributing to rising public debt.

“The positive outlook reflects increasing confidence that the government will manage those pressures in such a way as to sustain and enhance external and fiscal stability,” it said.

Fiscal reforms

According to Moody’s, Ghana has registered a number of positive developments in key credit metrics, which partly reflect the institutional and fiscal reforms implemented under the four-year IMF programme that was completed in April 2019.

These credit metrics include a return to sustained growth at roughly 5 per cent on average, supported by the development of domestic hydrocarbon resources and the prospect of sustained non-oil growth, driven by the restoration of power supply and renewed infrastructure investment, a structural improvement in the current account dynamics, and fiscal reforms that have resulted in primary surpluses since 2017.

Among the main reforms are the Public Financial Management Act, which improves fiscal governance, the establishment of a Fiscal Council and passage of the Fiscal Responsibility Law (2018). These require adherence to an overall fiscal deficit ceiling of 5 per cent of gross domestic product and a primary surplus.

Last year produced a cash deficit of 4.8 per cent of GDP and a primary surplus of 0.9 per cent. This was weaker than the initial targets but within overall limits. Moody’s expects a similar outcome this year and a renewed shift to fiscal consolidation after the election.

Growth speeds up

The positive verdict by Moody’s seems to be in sync with the position the government has held on the state of the economy. Both the President and Vice-President have offered repeated indications of how well the economy has been run.

Addressing a press conference on Thursday at the just-ended World Economic Forum in Davos, Switzerland, President Akufo-Addo said the economic recovery programme his government put in place has been significantly successful.

The programme has “addressed the key phenomena that needed to be addressed, like the rate of growth of the economy, the expansion of employment, stronger economic activity, and also enabled us to pay for the Free Senior High School policy”, the President said.

“Even though we were under an IMF programme, many of the indices of economic well-being were not present. High rates of inflation, high indebtedness, very sluggish growth, negative growth in agriculture, bare growth in industry – in fact, those are the circumstances that brought me into office as President of Ghana,” he said.

The Moody’s rating and the data on the economy support the view of the Vice-President, who has challenged critics of the Akufo-Addo-led government not just to criticise, but to offer data to support their claims.

“The data is quite clear and if you interrogate the data you can only conclude that indeed this is competence in the management of the economy,” Dr Bawumia said at a recent event in Koforidua.

Potential challenges

Despite the brighter outlook, Moody’s draws the government’s attention to potentially challenging areas which could affect the current gains if care is not taken.

“The decision to affirm the B3 rating balances, for now, those positive medium-term trends and existing challenges.

“A key constraint on the rating is the country’s significant exposure to international capital flow reversals, which tend to coincide with exchange rate volatility and rising external and domestic borrowing costs, putting pressure on already weak debt affordability,” the report says.

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