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Cedi to deteriorate further as S&P scares foreign investors

Adnan Adams Mohammed

The Ghanaian economy is to further suffer the consequences of another ratings from S&P Global Ratings as it downgrades the nations debt sustainability to CCC+/C, outlook negative.

The ratings, released last week, has strong negative consequences on the deteriorating exchange rate, especially the U.S dollar against the local currency (Cedi), as foreign dominated investors in the countries debt instruments are recouping their investment.

This, coupled with high import bills, has depleted the country’s international reserves to unsustainably low putting pressure on the Cedi as it’s currently trading on the forex market at GHC9.10 to a dollar. These necessitated S&P lowering Ghana’s foreign and local currency sovereign ratings to CCC+/C from B-/B.

“Reflecting Ghana’s limited commercial financing options, and constrained external and fiscal buffers”, S&P justified its negative outlook for the country.

The Covid-19 pandemic and the conflict in Russia have magnified Ghana’s fiscal and external imbalances, S&P said.

Demand for foreign currency has been driven higher by several factors, including nonresident outflows from domestic government bond markets, dividend payments to foreign investors and higher costs for refined petroleum products, the agency said.

The nation has also been affected by a lack of access to Eurobond markets, the agency said.

Local authorities have passed a levy on electronic transactions and legislation to tighten exemptions on tax payments including for VAT, among other moves. “While these changes could improve the tax take going forward, the situation remains challenging, and over the first half of 2022, the fiscal deficit has exceeded the government’s ambitious target,” S&P said.

S&P had affirmed Ghana’s ratings in February, as Moody’s downgraded the African nation to Caa1 with a stable outlook.

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