Ghana has been given ‘B/B’ rating of its long-term and short-term sovereign foreign and local currency by the Standard & Poors, an international credit ratings agency.
According to the agency, the country’s transfer and convertibility (T&C) assessment also remains at B+.
A release issued by Standard & Poors indicated that although Ghana continued to benefit from strong gross domestic product (GDP) growth, strengthening oil production volumes, and a track record of political stability, weak fiscal management highlighted by a widening of the fiscal deficit in 2010 and increased supplier arrears might persist in future.
The transfer and convertibility assessment measures the ease at which a country’s currency can be converted into gold or another currency while the sovereign foreign and local currency rating takes into account the economic and financial risk that may affect a country’s creditworthiness as well as the likelihood that a country would receive external support in the event of financial difficulties.
The ‘B’ rating given to Ghana’s long term sovereign currency means that the country’s capacity for timely fulfilment of its financial obligations is vulnerable to adverse changes in internal and external circumstances while the ‘B’ rating of the country’s short-term sovereign currency means that Ghana’s capacity for timely repayment could be affected by unexpected adversities.
According to the S&P, the ratings for Ghana were constrained by their view of the country's continued weak fiscal management, which has contributed to large fiscal deficits and supplier arrears.
Similarly, S&P believes the looming elections could further erode fiscal discipline with forthcoming oil revenues possibly used as an excuse to ramp up spending.
Accordingly, pressure on government spending, the release said, was likely to be heightened by intense popular demand to improve public services, and by spending pressures associated with the 2012 presidential elections.
The ratings are an assessment of a country’s competitiveness in accessing credit on the international market.
“In our view, the government's weak payment culture and fiscal discipline continues to be highlighted by the net new accumulation in 2010 of further arrears amounting to 1.9 per cent of GDP, raising the stock of arrears to an estimated 5.5 per cent GDP at end of 2010,” the report indicated.
That, it said, was in addition to the widened fiscal deficit to 7.4 per cent of GDP in 2010, from 6 per cent in 2009.
“Although improving, we continue to be concerned as to the extent of contingent liabilities that could crystallise from state-owned enterprises (SOEs) and the banking sector,” it said.
In spite of the factors mentioned above, the release stated that receipts from the oil sector should begin to improve fiscal flexibility in the medium term, provided that spending could be contained.
“And, despite accumulating new arrears on its own account, the government has paid off a substantial portion of arrears owed by the Tema Oil Refinery (TOR) to Ghana Commercial Bank (GCB), a key player in the domestic banking sector,” the report admired.
The rating agency also said that the Petroleum Revenue Management Bill, passed in 2011, had added clarity to government oil receipts.
According to S&P, the Multilateral Debt Relief Initiative (MDRI) contributed to a significant reduction in Ghana’s net external debt in 2006, but the public sector had been re-leveraging ever since; general government debt reached 38 per cent of GDP at year-end 2010.
S&P feared a bilateral loan from China might lead to a further ramp up in debt over the next few years as the debt ratio would have been even higher while the double-digit inflation had the potential to boost nominal GDP.
It, however, expressed the hope that the emergence of the oil sector, along with good performance in Ghana's other key export sectors, would lead to strong real GDP per capita growth averaging five per cent from 2011-2014.
Standard & Poor's (S&P) was a United States-based financial services company that publishes financial research and analysis on stocks and bonds.
As a credit-rating agency (CRA), the company issues credit ratings for the debt of public and private corporations.
Source: Daily Graphic
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