Fitch downgrades Ghana’s credit ratings over ‘severe’ fiscal deficit deterioration

Fitch Ratings downgrades Ghana’s credit outlook from stable to negative as the country’s fiscal deficit is severely deteriorating.

The downgrade released February 15, 2013, according to the ratings agency, was due to the “severe deterioration in the fiscal deficit” which hit 12.1% of GDP in the run up to the December 2012 election.

Ghana overshoot its 2012 budget deficit target almost 100% as the country spent more than the revenue it had.

Ghana’s total revenue and grants in 2012 amounted to GH¢16.1 billion (22.3% of GDP) against a budget estimate of GH¢16.9 billion, the Bank of Ghana (BoG) reported February 13, 2013.

The country’s expenditures including arrears clearance and commitments totalled GH¢24.8 billion (34.5% of GDP), 14.7% higher than the budget target.

“This 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,” said Fitch in a statement.

According to Fitch, the deterioration suggests a “serious loss of fiscal control and reduced credibility”.

It however affirmed Ghana’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B+’. The agency has also affirmed the Short-term IDR at ‘B’ and Country Ceiling at ‘B+’.

Fitch believes government’s “ambitious but realistic fiscal consolidation plan” which is evidently being effectively implemented will strengthen the fiscal control.

Over the medium term, it says the new oil and gas sector has the potential to boost Ghana’s economic output, diversify the economy and strengthen the country’s public and external balance sheets.

In Fitch’s view, Ghana’s GDP growth remains robust, in excess of 7% and growth prospects will depend on oil production coming on stream as anticipated, increasing to 120,000 barrels a day in 2013 and to 600,000 by 2018.

“All these factors should eventually strengthen Ghana’s creditworthiness,” said Fitch.

The continued development of the gold sector and further investment in infrastructure will also hand the country a boost in fiscal economic growth.

Fitch disclosed that a special report focusing on Ghana’s budget and the prospects for government finances entitled ‘Ghana: The State of Public Finances’, will be published shortly.

By Ekow Quandzie