Focus on fiscal reforms – Fitch tells Ghana

Fitch Ratings on February 18, 2013 advised the Ghana government to put more efforts on fiscal reforms in order to restore confidence in the country’s public finances which in a long run will help curb the rising budget deficit.

The rating agency on February 15, 2013 downgraded Ghana’s credit outlook from ‘B+’ rating to Negative, reflecting the severe deterioration in the fiscal deficit to 12.1% of GDP which is nearly double the government’s target of 6.7% set in July’s supplementary budget and well above the initial budget of 4.8% agreed at the start of the year.

In a newly published report on Ghana’s finances, Fitch says “curbing the deficit in 2013 – a challenging task but one made substantially easier by strong nominal GDP growth – will not be sufficient to restore confidence in the long-term sustainability of Ghana’s public finances.”

Fitch continues “The focus will need to shift to fiscal reform, especially in public expenditure management. Structural sources of fiscal slippage will need to be reduced, including fuel and utility subsidies, weak controls on capital spending, and civil service reforms.”

It called for a “credible consolidation plan” which the country needed in order to “ease concerns about a major weakness in Ghana’s long-term creditworthiness.”

“Most important, the government will need to prevent a repeat of the election-spending cycle, or risk creating adverse debt dynamics,” it added.

Fitch’s report “Ghana: Negative Outllook as Public Finances Deteriorate” discusses the reasons behind the fiscal blowout, the prospects for consolidation as well as the evolution of debt dynamics.

The report says the increase in Ghana’s deficit shows a serious loss of fiscal control.

Fitch noted that it is particularly worrying authorities have opted to contract debt at punitive rates to fund a surge in current expenditure at the expense of capital expenditure. “This raises serious concerns about fiscal management and the sustainability of government finances if such a trend were to continue,” it added.

It also raises doubts about long-term potential growth, which would suffer from a reduction in capital expenditure, Fitch continued.

By Ekow Quandzie