Associate Professor of Finance at the University of Ghana Business School (UGBS), Professor Lord Mensah says Fitch’s downgrading of Ghana’s Long-term Foreign-Currency Issuer Default Rating (IDR) to B- with a negative outlook should not be taken for granted.
According to him, the situation if not handled well could create dire consequences for the country’s economy in the years to come.
Speaking on JoyNews’ PM Express on Monday, Professor Lord Mensah explained that the new rating meant that Ghana will face more difficulties raising funds from the international market in the future.
“If Ghana has been downgraded by a margin, which is a B and it has a negative outlook, it tells you that yes indeed the investor needs to be careful and in the end if you’re bringing your money to the Ghanaian environment you have to be careful because the ability to pay keeps on degenerating over the years and this is what the outlook looks like,” he said.
He stated that as a result of a lack of investors’ confidence in Ghana’s ability to pay back debts, the country will be forced to raise money at a higher cost which may further exacerbate the debt situation in the country deepening the country’s economic woes.
“Now we’re not attracting much so effectively, if we take a global investor who wants to diversify, obviously he would want to pump some money into our environment, but that is going to be at a higher cost.
“And in the end it also depends on the government signals on the ground as to how urgent we need money. If the government is desperate for money, then by hook or crook we may borrow at a higher cost and in the end the consequence will be that our debt will keep on growing,” he said.
He added that “If you take our debts over the years you can clearly see that sometimes it’s not the principal that is growing, it’s the interest rate that is growing, and coupled with it being in a foreign currency, we turn out to be struggling in terms of raising the dollar to pay back our debt.”
Background
International ratings agency, Fitch, has downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’ with a negative outlook.
The downgrade of Ghana’s IDRs and Negative Outlook reflect the sovereign’s loss of access to international capital markets in the second-half of 2021, following a pandemic-related [COVID-19] surge in government debt.
Fitch in a report said “this comes in the context of uncertainty about the government’s ability to stabilise debt and against a backdrop of tightening global financing conditions. In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high interest expenditure to revenue ratio.”
It pointed out that Ghana’s effective loss of market access to international bond markets increases risks to its ability to meet medium-term financing needs.
Source:myjoyonline.com
