Mould, Bopkin, others reacts to Akufo-Addo’s disposition against rating agencies
Adnan Adams Mohammed
Economic Policy Analysts has described President Akufo-Addo’s reaction against the credit agencies report on Ghana’s economy as a sign of weak leadership.
According to the analysts, the president’s advisors are not telling him the truth about the near economic crash situation at hand. they believe that, a good leader should surround himself with people who will always tell him the truth not praise sing on the state of economy.
Speaking at the African Union meeting, last week, in Addis Ababa, Ethiopia, President Nana Akufo-Addo urged African leaders to guard against the continuing consequential power of rating agencies on African economies.
But a former Standard Chartered Bank Executive Director, Alex Mould, has indicated that, Capital markets downgraded Government of Ghana (GoG) bonds when they started selling them at 80 percent at end December 2021 when budget had been read, investors did not believe GoG ability to raise revenue from GHC53 billion to GHC70 billion, an almost 32% increase; because nothing tangible supported that. Then, It went down to 70% before the downgrade in January by Fitch.
“Weak leadership. Instead of taking responsibility and taking steps to correct your ways, you are rather externalising your incompetence”, Neenyi Ayirebi Acquah, the Economic Analysts at Ghana Growth and Development Platform jilted the call by President Akufo Addo.
Meanwhile, Mr Mould justified his earlier position exonerating the rating agencies by indicating that, “the country’s debt service, that is, amount needed to pay our debts is GHC45.5 billion (made up of interest of GHC37.4 billion and principal of GHC8.0 billion -based on an exchange rate of GHC6.2 to US$1.0 budgeted). Although, the exchange rate can not be suppressed for long as the market is at GHC6.7 as at last week. So the markets estimate exchange rates to end this year at GHC7.2, this giving an average year exchange rate of GHC6.6.
With this analysis, GoG have to now raise GHS12.5 billion in forex in loans to fund projects and other budget deficit items. Government will also be raising GHC29 billion in new additional local debt to fund the deficit.
GoG has indicated that it will be raising GHS29 billion in new additional local debt to fund the deficit. The International Monetary Fund (IMF) is also giving GoG about US$750 million.
But its projected by the Ministry of finance data that, forex debt Amortization (paying back the principal of the debt) for 2023 is GHC10 billion, and 2024 is GHC12 billion. The challenge is 2025 when we need to pay GHC22 billion back.
“If capital markets are closed and we can’t access any bilateral loans we will have no option but to raise local debt and stifle out the private sector (as banks prefer GoG debt to real sector lending as it is risky) and that will lead to higher interest rates, exchange rates, fuel prices, inflation…”, Mr Mould noted.
Consequently, an economics lecturer at the University of Ghana Business School, Prof. Godfred Bokpin, has described as misplaced, the government’s attack on some credit rating organizations following their damning ratings of Ghana’s economy.
The Professor believes the rating agencies are not far from the truth despite any shortcomings.
He is thus urging the government to take steps to turn things around by making some more expenditure cuts.
“I do not see a lot of reactions from the government. I think that government should rather focus on the fundamental imbalances and the fiscal unsustainable issues that the country is saddled with. Other than that, we will be majoring in the minors.”
“If you look at the government’s own drive to pass the E-levy at all cost, it tells you about a certain level of desperation. There is enough that we can get from the economy that all is not well, even without the help of the credit rating report. The best reaction from the government is rather to cut wasteful expenditure.”
Apparently, President Akufo-Addo charged African leaders to help reform the global financial architecture. The credit ratings by these rating agencies(Fitch, Moody’s, S&P), he described, has affected the cost of borrowing and access to the international capital markets.
“We need to guard against the continuing consequential strangle of the rating agencies which has affected the costing, access to capital markets for African countries. It has during this COVID-19 period resulted in the downgrading of many African countries, exacerbating even more their funding challenges.
“Furthermore, it is of the utmost importance that the G20 leaders stick to their commitment to reallocate to Africa SDR 100 billion they made, reached at the Paris Summit in May 2020.
“The IMF should not be the sole beneficiary of such rechanneling, noting “we believe that our own continental institutions, such as the African Development Bank (AFDB) and Afreximbank, should be recipients of the recycling of these SDRs. Our Finance Ministers and the United Nations Economic Commission for Africa (UNECA) have advocated for the use of regional development agencies to be included in this rechanneling”, the ECOWAS Head of States Chairman opined.
He called on the African leaders to work collectively as the African Union to reform the global financial architecture even if we build and strengthen our financial institutions, as he believes, will address the financial challenges of some African countries.