Moody’s has published its annual credit analysis of Ghana, providing an analysis of the African country’s key credit strengths and weaknesses as well as the rationale for the government’s B1 bond rating and stable outlook.
The credit ratings agency (CRA) says that Ghana’s creditworthiness is enhanced by a relatively diversified economic structure and robust domestic demand, balanced by a low per capita income relative to B1-rated peers. Moody’s expects the commercialisation of recent oil and gas discoveries to fundamentally transform Ghana’s economy, accelerating growth while global energy prices remain supportive.
Additional factors driving the rating also include a history of democracy, political stability, and policy continuity, although budget execution has been undermined by weak public financial management.
However, the government’s balance sheet deteriorated dramatically in 2012, driven by elevated expenditure commitments in the run-up to the presidential election last December, public sector wages, energy subsidies, the clearance of arrears, and rising interest expenditure exacerbated by a weaker currency.
As a result, public sector debt rose to 47% of gross domestic product (GDP) in 2012 from 26% in 2006, steadily erasing the fiscal space gained through multilateral debt forgiveness in the mid-2000s.
Looking ahead, Moody’s sees significant fiscal consolidation in 2013-14 as a precondition to maintaining the current rating. The CRA expects the government’s fiscal position to improve as expenditure pressures that built up to last year’s election moderate going forward, provided that there are no unexpected disruptions to oil production. However, it notes that the government will find it challenging to reform energy subsidies and transfers to public corporations.
Moody’s adds that Ghana’s twin current account and fiscal deficits leave the country susceptible to external financial shocks in the form of a sustained currency depreciation or a sudden stop in portfolio inflows into the domestic capital market for government securities. External vulnerability is exacerbated by Ghana’s limited foreign currency reserve buffer and a large share of dollar-denominated public sector debt.
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