Ghana’s B3 credit rating and stable outlook reflects its strong economic growth outlook and reduction in external imbalances, set against challenges which include a significant fiscal overrun in 2016, high government debt and very low debt affordability, Moody’s Investors Service said in a report published this past week.
“Ghana’s credit strengths include the strong growth outlook for the country’s diversified economy compared to the regional average over the next few years, supported by new oil and gas field developments coming on stream,” said Elisa Parisi-Capone, a Moody’s Vice President — Senior Analyst and co-author of the report. “Its challenges include a debt ratio exceeding 70% of GDP and very low debt affordability metrics over the next two years.”
Since 2012, Ghana’s debt has increased by nearly 25 percentage points of GDP, primarily because of fiscal overruns and currency dynamics. Based on Moody’s fiscal deficit forecast and the assumption of a modest depreciation in the cedi currency, the rating agency estimates that Ghana’s public debt will peak at 73.2% of GDP in 2017, before beginning to decline next year.
Ghana’s debt affordability is very low due largely to its high domestic borrowing costs. The large share of foreign currency debt at non-concessional terms exposes the country’s debt dynamics to foreign exchange shocks and to a tightening of external liquidity conditions.
Moody’s forecasts that Ghana’s real GDP growth will accelerate to 6.1% in 2017 from 3.5% in 2016, followed by 7.5% in 2018. This growth boost stems mainly from increased oil and natural gas production rather than the non-oil sector, which is projected to remain relatively more subdued at 4.5% to 5% over the forecast horizon, held back by fiscal consolidation pressures and still subdued real credit growth.
Moody’s assesses Ghana’s susceptibility to event risk as “Moderate (+)”, driven primarily by government liquidity risk linked to large gross borrowing requirements amid tight domestic and external funding conditions.
The Ghanaian banking system remains liquid and well-capitalised, with a capital adequacy ratio of 17.4% as of April 2017. Key risks include the high non-performing loan (NPL) ratio and significant concentration risk in the energy sector.
Downward credit pressures on Ghana’s sovereign rating would arise from emerging funding constraints in the domestic debt market. An adverse ruling in September 2017 on its dispute with Côte d’Ivoire over the ownership of the Tweneboa, Enyenra, Ntomme (TEN) oil fields would also be negative.
Upward pressure on the sovereign rating would stem from a significant reduction in fiscal and external imbalances supported by the structural reform agenda agreed with the IMF.