News Guide Africa

Tag: Ghana economy deteriorating

  • Ghana is only ECOWAS country in debt distress – AfDB

     

     

    Adnan Adams Mohammed

     

    The African Development Bank’s newest report, the 2023 West Africa Economic Outlook, ranked Ghana’s external debt to GDP of about 39.5 percent recorded in 2022 as 10 percent higher than the West African average of 29.6 percent.

     

    Ghana’s external debt stood at $29.0 billion as at the end of December 2022, ranking sixth highest on the continent.

     

    However, countries such as Cape Verde, Senegal and Niger that have high external debts to GDP are not in distress, but Ghana is the only ECOWAS country, in debt distress.

     

     

    “West Africa’s external debt increased from an average of 13.8% of GDP in 2014 to 29.6% in 2022. The debt accumulation was facilitated by a rise in the issuance of Eurobonds. Eurobonds have been issued by Côte d’Ivoire, Ghana, Nigeria, and Senegal since 2011, and by Benin since 2019”, the West Africa Economic Outlook 2022 noted.

     

    External debt accounts for the largest proportion of the total public debt portfolio in most countries except Nigeria and Togo in the sub-region.

     

    Meanwhile, the Report explained that, the external debt accumulation was facilitated by a rise in the issuance of Eurobonds. This suggested that exchange rate depreciation as well as the current normalization of monetary policy across the world, were important risks for these countries.

     

    It furthered that the key drivers of external debt dynamics in West Africa were the rapid exchange rate depreciation, especially in commodity-exporting countries as well as high primary fiscal deficits and weak economic growth caused by the COVID-19 pandemic in 2020 and Russia’s invasion of Ukraine in 2022.

     

    “Higher nominal interest rates due to the current tightening of monetary policy in advanced economies have also contributed significantly to higher debt burden in the region. Projected higher economic growth and efforts to reduce the fiscal deficit through domestic resources mobilization, fiscal consolidation and spending restraint are expected to contain external debt accumulation in the region in the medium term”, it added.

     

    Therefore Ghana’s economic challenges may not be only due to the high debt burden, but rather a myriad of issues.

     

     

     

  • Industrializing the Ghanaian economy is more sustainable

    Industrializing the Ghanaian economy is more sustainable

    Adnan Adams Mohammed

    As government of Ghana looks for sustainable way to manage its debt, it has been urged to strengthen its industrialization policies.

    An economist believes that, as Ghana moves to negotiate with China for debt forgiveness, the debt stressed country needs proactively to industrialize the economy in order to withstand external economic shocks.

    Ghana’s economy suffered the shocks of COVID-19 and the Russian-Ukranian war as well as the skyrocketed petroleum price on the world market coupled with over-borrowing and mismanagement of public funds. These had a toll on the local currency, which depreciated more than 50 percent last year to the major international trading currencies with inflation breaking all time records in more than two decades to peak around 54 percent. These have led the country to restructure its debt which has crossed 100 percent of Gross Domestic Product (GDP). However, the economist diffused perceptions that China may seize the opportunity to take over the local industries if the negotiations are successful.

    “Do we as a local economy immediately have capacity to produce the things that we ordinarily import from China?”, An economist and currency analyst at GCB Capital Limited Courage Boti said. “Our industrialization policies are not up and running. So I don’t see what China will demand from us differently from what we have in place”, he added.

    The Finance Minister, Ken Ofori-Atta, last week disclosed that, as part of government’s effort for external debt relief, its planned high-level meeting with Chinese creditors over Ghana’s debt restructuring which has been postponed to late March 2023.

    Meanwhile, Economist Courage Boti argued that the perception of importation of inferior goods from China is subjected to the purchasing power of the importers.

    “In a bargain, concessions must be made .I think at this point in time the most pressing issue is that our debt is not sustainable and we must find a way to return it to sustainable path. Negotiating with them will mean that we’re trying to get them on our side so that they could cooperate with debt restructuring,” he said.

    “The question is, it will come at what cost? Will it mean dampening of Chinese goods?,” He quizzed.

    Again the Chinese goods on our markets: the quality argument and associated perceptions, our traders decide what they bring in and so the quality we talk about are determined by what we are willing to buy,” he stated.

  • Ghana’s ‘junk’ economy…Ftich, Terkper express worry

    Ghana’s ‘junk’ economy…Ftich, Terkper express worry

    Adnan Adams Mohammed

     

    A former Finance Minister has diffused government’s incessant blame of Ghana’s economic woe on effects of the Covid-19 pandemic and the Russia–Ukraine war.

     

    The former minister, instead, blamed government’s inability to pay for its debt on the decision by the Finance Ministry to stop allocating monies into the Sinking Fund set aside to pay for Ghana’s Eurobonds.

     

    Reacting to the current finance minister’s, Ken Ofori-Atta, comment that, the current state of Ghana’s debt is due to the lingering effects of the Covid-19 pandemic and the Russia–Ukraine war. Alluding that, those effects contributd to the high macroeconomic instability experienced in 2022, and worsened by downgrades by rating agencies as well as the consequential pressures on government finances due to the actions of non-resident investors and the delayed passage of our revenue bills. However, the former finance minister took a swap against government’s excuses.

     

    “We have to behave like a middle income country and put this buffers in place. We saw what the Sinking Fund did for us. We were able to take $250 million to tackle Covid first, right before we even went to the bank for Covid loan and the World Bank for support”, Seth Terkper noted in his reaction, last week.

     

    He argued that it was an unwise decision for government to abandon a laudable policy such as the establishment of a Sinking Fund which provided space for government to pay the country’s Eurobonds.

     

    He stated that Ghana should not have been in the current situation it finds itself with the discovery of three new oil blocks inherited by the government.

     

    “We started operations from the three oil blocks. We got about $3 billion from the IMF, and the World Bank. We also got Covid funds from the World Bank”.

     

    Recounting how government misused all the funds at its disposal, Mr. Terkper pointed out that the government stubbornly refused to put a cap on the Stabilisation Fund, drawing monies from the funds with no accountability.

     

    “After all the monies that came in we kept depleting the Stabilisation Fund. The government refused to put a cap on how much can be withdrawn. It makes you ask the question, how were all those resources used”, he added.

     

    Since discussion for the International Monetary Fund support started, Mr. Ofori-Atta, has agreed that Ghana would have to address its economic challenges on three fronts – embark on fiscal consolidation, undertake debt operations and secure financing assurances from development partners.

     

    While addressing Parliament on the Domestic Debt Exchange Program, last week, expatiated that “as I have indicated earlier, the domestic debt exchange programme was to alleviate the debt burden while minimising its impact on investors and the financial sector. Participation in the programme has always been “Voluntary”. The details of the domestic debt exchange are outlined in the Exchange Memorandum, and the subsequent amendments have been publicly available”.

     

    The coverage of the Exchange includes all locally issued bonds and notes of government as well as ESLA Plc and Daakye Plc bonds. Based on the results of the audit of the public debt, government excluded Treasury-bills and Pension Funds from the exchange.

     

    Out of the total ¢97,749,624,691 eligible bonds were tendered, ¢82,994,510,128 was successfully tendered.

     

    This accounted for about 85% of outstanding eligible amounts and met the target of 80% as expressed in the Memorandum of Exchange.

     

    “Government is however mindful that the Gh¢82,994,510,128 bonds that were successfully tendered represents 64% of the outstanding debt stock of Gh¢130billion at the end of December, 2022”, Mr. Ofori-Atta.

     

    As government jubilate, Fitch, an international rating agency, is skeptical about the deal’s efficiency, as it has described Ghana’s debt exchange programme as a distressed one. This is  under its criteria, given this material reduction in terms vis-à-vis the original contractual terms, and given that the exchange is needed to avoid a traditional payment default. But, the Minister of Finance is confident that the DDEP will build momentum for the country’s external debt restructuring programme.

     

    “The DDEP, part of the government’s broader fiscal policy to address the country’s current macroeconomic challenges, restore macroeconomic stability and put Ghana on a sustainable path to growth and development, has ended with 85% participation”, Ken Ofori-Atta said when addressing Parliament, last week.

     

    “This success, will also build momentum for the external restructuring programme, which has also commenced.”

     

    He said as part of this process, Ghana has officially asked its bilateral creditors for a Debt Treatment initiative under the G-20 Common framework.

     

    Mr. Ofori-Atta also stated that negotiations had already begun with commercial creditors, with the establishment of a Creditor Committee to assess Ghana’s request for debt treatment under the Common Framework expected by the end of February.

     

    He acknowledged the importance of the DDEP in helping the government meet its debt sustainability target of 55% of debt-to-GDP in present value terms by 2028.

     

    “The Government recognises the continued importance of the DDEP in closing the financing gap and enabling the government to meet the debt sustainability target,” said Ofori-Atta.

     

    With the successful completion of the DDEP, Ghana is hoping to make headway in restructuring its external debt and reducing its debt burden in the long term.

     

     

    Apparently, according Fitch’s sovereign rating criteria, a ‘Rating Default’ rating is consequently assigned to the Long-Term Local Currency Issuer Default Rating.

     

    Among the 67 eligible bonds that could be tendered, six are rated by Fitch. A ‘D’ rating has been assigned to these six bonds.

     

    A GH¢4.2 billion principal payment was due on February 6, 2023.

     

    But in the second amended and restated exchange memorandum released on Feb. 7, authorities announced that eligible holders holding this bond would not receive a final interest payment and a final principal payment, regardless of whether an eligible holder has tendered or not.

     

    But in a press release issued by the Finance Ministry on February 14, 2023, the authorities announced that coupon payments and maturing principals would be honoured “in line with government fiscal commitments.”

     

    This announcement, Fitch, said does not clarify yet when the payment will be made to holders who opted out of the domestic debt exchange. In particular, it does not clarify whether a principal payment will be made before the expiration of the grace period for this specific issue. This security is one of the six issues that have been downgraded to ‘D’.

  • Economy to grow 2.8% in 2023 – IMF predicts

    Economy to grow 2.8% in 2023 – IMF predicts

    Adnan Adams Mohammed

     

    The International Monetary Fund (IMF) has projected a 2.8% Gross Domestic Product for Ghana in 2023, as it expects the growth rate in 2024 to be better. The Fund is anticipating a rebound in the Ghanaian economy in 2024.

     

    This is due to expected improve economic activities, particularly in the extractive sector, which will boost growth. But, the sub-Saharan Africa’s growth is projected to remain moderate at 3.8% in 2023 amid prolonged fallout from the COVID-19 pandemic, although with a modest upward revision since October, before picking up to 4.1% in 2024.

     

    “On Ghana, we do expect growth to slow this year. This is partly because of the global headwinds that Pierre Olivier [Chief Economist and Director Research Department] has been discussing. So, it’s a difficult time for the global economy to affect Ghana”, Division Chief at the Research Department, Daniel Leigh, said when answering questions from the press at the just ended World Economic Forum in Davos, Switzerland.

     

    “But also, there are some domestic headwinds. In particular, inflation has increased significantly. And so, the Central Bank is tightening monetary policy, but that is cooling the economy domestically. Plus, the fiscal policies are tightening to address the elevated debt. This is the cooling in 2023”, he pointed out.

     

    “But in 2024, we see a rebound in particular in the extractive activities. And that is going to support Ghana in 2024”, he added.

     

    Mr. Leigh also spoke of the $3 billion extended credit facility that Ghana is seeking from the IMF, saying, “The goal of that program is to reestablish macroeconomic stability, debt sustainability, and create the foundations for higher and inclusive growth over the medium-term”.

     

    “I would add that right now — so just very recently — the IMF team went to Ghana, reached agreement with the Ghanaian authorities on an economic reform program that will be supported under a $3 billion extended credit facility. And the goal of that program is to reestablish macroeconomic stability, debt sustainability, and create the foundations for higher and inclusive growth over the medium-term”.

     

    The January 2023 World Economic Outlook indicates that, the small upward revision for 2023 (0.1 percentage point) reflects Nigeria’s rising growth in 2023 due to measures to address insecurity issues in the oil sector.

     

    In South Africa, by contrast, after a COVID-19 reopening rebound in 2022, the IMF projected growth more than halves in 2023, to 1.2 percent, reflecting weaker external demand, power shortages, and structural constraints.

     

    Meanwhile, global growth, estimated at 3.4% in 2022, is projected to fall to 2.9% in 2023 before rising to 3.1% in 2024.

     

    Compared with the October forecast, the estimate for 2022 and the forecast for 2023 are both higher by about 0.2 percentage point, reflecting positive surprises and greater-than-expected resilience in numerous economies.

     

    Negative growth in global Gross Domestic Product or global GDP per capita—which often happens when there is a global recession—is not expected.

     

    Nevertheless, global growth projected for 2023 and 2024 is below the historical (2000–19) annual average of 3.8%.

     

    The forecast of low growth in 2023, the report, said reflects the rise in central bank rates to fight inflation–– especially in advanced economies––as well as the war in Ukraine.

  • Alex Mould diagnoses the Ghanaian economy and the resultant DDE

    Alex Mould diagnoses the Ghanaian economy and the resultant DDE

    Alex Mould

    Adnan Adams Mohammed

     

    Ghanaians are facing a period of economic harshness never experienced after the periods of the military junta in 1980’s.

     

    While inflation is beating about three decades records to record over 54.1 percent for December 2022 year on year, the Ghana cedi is losing its value by over 50 percent and had been adjudged as the worst performing currency as at November last year and current ranking second worst performing currency according to Bloomberg data.

     

    Also the country defaulted in debt servicing to both domestic and foreign debtors as the country’s accumulated debt surpassed its Gross Domestic Product recording  over 105 percent debt to GDP ratio. All these compounded with already global slowdown in economic growth and business activities and as well as drop in remittance to the sub-Saharan regions.

     

    A finance expert has done a deep postmortem analysis of Ghana’s current economic woes and attributed the ‘big factor’ to reckless borrowing and expenditure.

     

    In a question and answer session with a former executive director with Standard Chartered Bank, Alexander K. Mensah Mould, he outlined the causes and solutions to our current economic challenge leading us into a ‘killer’ debt restructuring arrangements under the Domestic Debt Exchange (DDE).

     

    “The financial crisis was largely a result of structural problems that ignored the loss of tax revenue and the slow down in growth in key sectors in a sustainable way”,  the analyst responded to a question on why the government is aggressively implementing the a debt exchange.

     

    “Government was simply not bringing in enough money to cover its growing expenditure including its debt service. This has been exacerbated by high inflation, high physical deficits, low growth in key sectors ,and problems with the exchange rate.”

     

    In explaining what happened that got us into this mess, Mr Mould alluded that, “Financial indiscipline and taking wrong bets via ill-thought through policies emanating from populist manifesto promises.

     

    “Government also was not constrained in its financial management and violated many covenants it signed up for, namely; Deficit not more than 5% of GDP and Public debt to below 60% of GDP. It also misrepresented its ability to keep the exchange rate under control by supporting the Cedi via sustainable strong exports and a strong trade surplus. As long as borrowing cost remained relatively cheap and the economy was still growing then issues like current account deficit continued to be ignored.

     

    “What government did not do was to stress test the economy to see the vulnerabilities and address them by putting some risk management measures in place to address these vulnerabilities.”

     

  • NDC explains why Gov’t is forcing a Domestic Debt Exchange Program on Ghanaians

    Adnan Adams Mohammed

    In a sixteen pointer release issued by the Communication Office of National Democratic Congress (NDC), it has outlined major factors that has destressed the Ghanaian economy in past years.

     

    The factors, the NDC believe are the reasons why the government has to force down the throat of Ghanaians a Domestic Debt Exchange Program, which many affected parties feel it is too harsh.

     

    Below are the pointers as outlined by the largest opposition party:

     

    1. The Bawumia-led Economic Management Team has terribly mismanaged the economy leading to its collapse and bringing severe hardships to Ghanaian. Ghana is now officially bankrupt and can no longer service its debt.

     

    1. An unsustainable public debt on which we have defaulted in repayment for the first time in 50 years, hyperinflation of 54.1%, a rapidly depreciating currency, economic hardships and an excruciating cost of living crisis are symptoms of this economic collapse.

     

    1. We are here because of the reckless over-expenditure of the Bawumia-led Economic Management Team which was climaxed in 2020 when Ghana recorded a budget deficit of 15.7% due to the reckless election-related expenses of the government. The consequence of this is the unsustainable public debt, which is 104% of GDP as of December,2022.

     

    1. After arrogantly denying that they needed to go to the IMF, they finally made a U-turn in July,2022 and requested for an IMF program.

     

    1. Due to our unsustainable debt, the IMF has demanded a reduction from the current debt to GDP ratio of 104% to 55% by 2028 as a prerequisite to access a program. It is in a bid to achieve this, that the Akufo-Addo/Bawumia government has unilaterally launched this draconian Domestic Debt Exchange (DDE) program.

     

    1. Under the DDE program, the principal of domestic bonds that will be maturing this year, 2023 will be paid over a 10-year period, that’s until 2033 while the principal of domestic bonds maturing after 2023 will be paid over a 15-year period, that is until 2038. And the coupon rates thereon reduced to 0% for 2023, 5% for 2024 and 10% for 2025 and beyond.

     

    1. The draconian DDE program is poorly through through and will impoverish banks, insurance companies, firms, pension funds and individual bond holders by denying them interest and principal payments due them if allowed to stand.

     

    1. This draconian DDE program being unilaterally imposed on bond holders, particularly individual bond holders by the Akufo-Addo/Bawumia government amounts to expropriation of the wealth of persons who have lent to government in violation of Article 20 of the 1992 Constitution. And must be rejected and resisted by bond holders and all fair-minded Ghanaians.

     

    1. In the case of banks who hold about GHS60 billion in government bonds, denying them interest payments in 2023 will impose severe hardships on them. In the case of some state-owned banks, up to 70% of their annual revenues come from interests on government bonds and the implication of the Domestic Debt Exchange (DDE) is that they will not have access to 70% of their revenue in 2023. This will severely cripple these banks and effectively lead to their collapse amidst major employee layoffs.

     

    1. For pension funds affected by the DDE, their ability to pay pensions to the aged and pensioners who depend on such payments for survival will be drastically hampered and this will lead to unspeakable hardships for pensioners.

     

    1. Including individual bond holders in the DDE contrary the President’s assertion that they will be exempted, will wipe out the middle class with up to 1.3 million bond holders affected and millions of their dependents thrown into a state of penury and hopelessness.

     

    1. Additionally, Bond holders who depend on their investments to buy medication, pay school fees or rent or fend for their families, pay their workers, invest in their business etc. will be denied access to their hard-earned monies which they have lent to government. This will worsen the financial position of bond holders and lead to inevitable lay offs by affected institutions. Access to credit will reduce significantly, economic growth slow down considerably and the excruciating hardships Ghanaians are already reeling under will soar.

     

    1. Even as the Bawumia-led Economic Management Team imposes such hardships on Ghanaians, government has insulated itself from sharing the burden. They have refused to cut down on non-essential expenditure, the needlessly huge size of government and such wasteful investments such as the building of a $450 million cathedral at a time when they cannot pay their debts and are giving crude haircuts to bond holders.

     

    1. It must be emphasized that we are in this mess because of the reckless borrowing and spending engaged in by the Bawumia-led EMT in the last six years which has ballooned the public debt from GHS120 billion in 2016 to over GHS500 billion. Against the wise counsel of many well-meaning Ghanaians, the wasteful and greedy Akufo-Addo/Bawumia government borrowed recklessly and celebrated same with Kenkey parties with the cousin of the President and finance minister profiting from same through transaction advisor fees.

     

    1. Government’s arrogant posturing and the lack of proper stakeholder consultations that has characterized the so-called debt exchange program must be strongly condemned. Government must stop treating Bond holders with contempt and engage them in proper negotiations for a workable settlement.

     

    1. In view of the disastrous consequences on all affected entities and individuals, the Minority caucus in Parliament demands an immediate suspension of the Domestic Debt Exchange pending much broader and deeper consultations with all stakeholders to achieve the most appropriate and least punitive approach to protect the interests of Ghanaians.

     

    NCB-HQ

  • Gov’t to shift focus to fiscal stability in IMF support… as negotiation progresses

    Gov’t to shift focus to fiscal stability in IMF support… as negotiation progresses

    Adnan Adams Mohammed

    The International Monetary Fund (IMF), in renewed effort to progress the stalled negotiation towards reaching a deal with Ghana has indicated that, the focus of support might shift from Balance of Payment to ensuring fiscal stability.

    According to the fund, it is possible to change the terms of support request of the government to better suited terms that solves the current challenge the economy faces. It thereby indicated that increasing revenue mobilisation is critical for debt sustainability while safeguarding social spending.

    The Fund has noted that, although it is premature to comment on the final form the financing programme for Ghana will take, In its latest Frequently Asked Questions (FAQ), said the Executive Board will decide the level of access (credit amount) and the final programme design. It further reiterated that the goal of the government’s economic programme, which would be supported by IMF financing, is to restore macroeconomic stability and ensure debt sustainability, support the credibility of government policies, restore confidence in the central bank’s ability to manage inflation and rebuild foreign exchange reserve buffers to make the economy more resilient to shocks.

    “Specifically, in the fiscal sector, an important policy objective would be to increase revenues, critical for debt sustainability while safeguarding spending on health, education, and social protections”, the Fund posited.

    A staff team, led by Stéphane Roudet, mission chief for Ghana, is visiting Accra from December1 to 13, 2022, to continue discussions with the authorities on the country’s post-COVID programme for economic growth and associated policies and reforms that could be supported by a new IMF lending arrangement.

    Ahead of the visit, Mr Roudet said: “We have had productive discussions with the Ghanaian authorities over the last few months and look forward to our engagement in Accra”.

    “Our objective for this visit is to make further progress toward reaching agreement on policies and reforms that could be supported by an IMF lending arrangement”.

    “The IMF remains fully committed to help Ghana restore macroeconomic stability, bring relief to Ghanaians in this time of crisis, and lay the foundation for more inclusive growth.”

    In Ghana’s 2023 budget, Finance Minister Ken Ofori-Atta said the government and the IMF have agreed on programme objectives, a preliminary fiscal adjustment path, debt strategy and financing required for an extended credit facility programme to be in line with the government’s Post-COVID-19 programme for Economic Growth (PC-PEG).

    The PC-PEG is the government’s blueprint to restore macroeconomic stability, promote debt sustainability, sustain economic recovery and support structural reforms.

    Updating the house on the negotiations so far, Mr Ofori-Atta said: “Mr. Speaker, since the government announced its engagement with the International Monetary Fund for a supported programme on July 1, 2022, we have made “substantial progress”.

    The Fund, he said, has assured the government of its “strong commitment and support in these difficult times”.

    On whether Ghana needs debt restructuring, the Fund said when an IMF member country requests financing, the Fund assesses whether the country’s policies are consistent with debt sustainability.

    This assessment is based on a Debt Sustainability Assessment (DSA) conducted jointly by the IMF and World Bank to determine whether the government is able to meet all its current and future payment obligations.

    The last DSA published in the 2021 Article IV Staff Report concluded that: “Public debt was sustainable conditional on a rigorous and credible implementation of the authorities’ medium-term consolidation plan to put debt on a declining trajectory and ensure continued market access.

    In their recent 2023 budget statement, the government assessed the public debt as unsustainable over the medium term. In this regard, the government has announced its  intention to conduct a debt operation to ensure debt sustainability.

    The Fund said “we welcome the authorities’ intentions to implement policies that will ensure the sustainability of public finances. However, the nature of engagements and debt operations between Ghana and its creditors are sovereign decisions”.

  • Inflation to Peak in Q3, end year at 22% – Fitch

    Inflation to Peak in Q3, end year at 22% – Fitch

    Adnan Adams Mohammed

    Fitch, in it’s latest rating action, expects inflation to peak in 3Q22 before slowing through the end of the year.

    The ratings released last week, projected annual average inflation of 22% in 2022, slowing to 16% in 2023. Fitch’s projection is better than Ghana government’s revised projected end year inflation of 28.5% as presented by the Finance Minister, Ken Ofori-Atta, during the presentation of the mid-year review budget to parliament, fortnight ago.

    Fitch’s projection is grounded on the recent Bank Of Ghana’s Monetary Policy Committee (MPC) decision to raise the main policy rate twice in 2022, by 450bp to 19%. However, Fitch believes that the central bank would raise the policy rate again if inflation does not peak in line with current expectations.

    “A higher policy rate would likely be transmitted to domestic yields, putting further pressure on the government’s domestic borrowing costs”, Fitch Ratings indicated.

    The government revised the end-period inflation from 8% to 28.5%.  

    Mr Ofori-Atta explained that, the revision of the end-period inflation for 2022, as part of the re-jigging of the entire macroeconomic framework, has been necessitated by a significantly-changed macroeconomic environment.

    He said based on the developments for the first six months of 2022 and outlook for the rest of the year, the government has, accordingly, revised the macro-fiscal targets for 2022 as follows.

    Figures released by the Ghana Statistical Service, (GSS), indicate that year on year inflation measured by the Consumer Price Index, (CPI) has increased slightly to 31.7 percent for the 12months period ended July, 2022 from 29.8 percent recorded in June, 2022.

    This means that between June 2022 and July 2022, prices of goods and services have gone up by 31.7% indicating a 1.9% increase.

    Government statistician Prof. Kobina Annim made the announcement when he addressed journalists on August 10, 2022.

    “We composed this from two perspectives, the food and non-food inflation and from a domestic and imported perspective. From the food and non-food inflation we recorded food inflation of 32.3% and 31.3% for non-food inflation.”

    “From the domestic perspective we recorded 29.2% and imported inflation of 31.3%.”

    This has been attributed to the increasing depreciation of the cedi which has led to the increase in the cost of imports.

    Imported goods such as cooking oil and gasoline due to the war in Ukraine, dollar strength and extreme weather caused the rise in the inflation rate from 29.8 percent in June.

    Fitch has downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CCC’ from ‘B-‘.

    The downgrade reflects deterioration of Ghana’s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity.

    In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022. However, Fitch, typically, does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

    “Ghana faces USD2.75 billion of external debt servicing in 2022, including amortisation and interest, and USD2.8 billion in 2023”, Fitch Ratings estimates. “Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government.”

  • Deteriorating Public Finance: Fitch Downgrades Ghana’s IDR to ‘CCC’

    Deteriorating Public Finance: Fitch Downgrades Ghana’s IDR to ‘CCC’

    Adnan Adams Mohammed

    Fitch Ratings has downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CCC’ from ‘B-‘.

    The downgrade reflects deterioration of Ghana’s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity.

    In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022. However, Fitch, typically, does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

    “Ghana faces USD2.75 billion of external debt servicing in 2022, including amortisation and interest, and USD2.8 billion in 2023”, Fitch Ratings estimates. “Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government.”

    “In 2022, we expect that the government will meet its external debt obligations, in part, through a combination of a USD750 million term loan from the African Export-Import Bank (BBB), USD250 million in syndicated loans from international commercial banks, and up to USD200 million from the government’s sinking fund.

    The 2022 mid-year policy review indicates that the government expects to source the rest from the IMF and other multilateral lenders. In the absence of an approved programme by the end of the year, the government would have to draw more heavily on its international reserves, which were USD7.6 billion, including oil funds and encumbered assets, as of June 2022.”

    The latest rating were on the following drivers: Increasing Possibility of Debt Restructuring; Tight External Debt Servicing Schedule; Uncertain Pace of Fiscal Consolidation; Domestic Debt Costs High; Weaker Near-Term Growth; among others.

    Uncertain Pace of Fiscal Consolidation: The government’s high interest costs and low revenue will continue to be impediments to fiscal consolidation efforts. The 2022 Budget’s medium-term fiscal framework had envisaged narrowing the deficit to below the existing deficit ceiling of 5% of GDP by 2024. The expected consolidation was based on the expiry of pandemic-related expenditure items and a significant increase in domestic revenue, driven by new taxes, including a levy on electronic transactions.

    Delays in implementing the new revenue measures have resulted in lower revenue and a larger nominal deficit in 1H22 relative to budget forecasts. However, the 2022 mid-year fiscal policy review presented in July contains an updated fiscal deficit forecast of 6.6% of GDP compared with the original deficit forecast of 7.4%, owing to an upward revision in nominal GDP. We forecast the 2022 fiscal deficit at 8.1% of GDP; this is inclusive of energy-sector clean-up costs not contained in the government’s figure. The possibility of new revenue measures could lead to a further shrinkage of deficit in 2023, but the government’s slim majority in parliament could frustrate attempts to raise tax rates or implement new taxes.

    Government interest costs reached 47.5% of revenue in 2021, considerably above the current ‘B’ median of 10.7%. We expect interest costs to remain at or above 45% through 2024.

    Interest costs largely reflect high yields on domestic debt. Yields have climbed higher in 2022, following inflation spikes and monetary tightening by the Bank of Ghana (BOG). Yields on the 91-day treasury bill reached 26% in July 2022, up from 12.6% in July 2021. Moreover, the government has reported under-subscribed yields, necessitating the tapping of existing medium-term issuance. The government has increased its outstanding advances with the BOG, providing some additional domestic financing and could conduct another private debt placement with the central bank as it did in 2020, but such a measure would necessitate parliamentary approval.

    The government has requested support from the IMF, which is likely to lead to additional financing from the IMF and other multilateral lenders. However, the government’s high interest costs and structurally low revenue as a percentage of GDP have increased the likelihood that IMF support would necessitate some form of debt treatment, although this is not our main scenario. The high interest burden on local-currency debt also means that the inclusion of a domestic debt treatment cannot be ruled out.

    In July 2022, the authorities reversed a long-standing position against seeking IMF support. Fitch believes that a deal with the IMF is likely within the next six months. We estimate that a programme could disburse as much as USD3 billion and unlock budget support from other multilateral lenders. However, the timing of such a deal is uncertain and would be dependent on the government’s ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics. The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs.

  • 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.