The African Peer Review Mechanism (APRM) has said whilst the effects of the Covid-19 pandemic and the severe global shock of the crisis in Ukraine on Ghana, highlighted by S&P and Fitch can be acknowledged, the speculative comments and ratings actions by the international rating agencies in the first half of 2022 materially contributed to the Ghana’s losing access to international financial markets.
The APRM said it views what it describes as “the unjustified negative rating actions in Africa since the beginning of 2022 as unwarranted and contrasting the continent’s economic recovery efforts from the devastating impact of the Covid-19 pandemic.”
This is compounding the complexity of driving the economic recovery process and making current fiscal measures ineffective, it said.
The APRM has the mandate from the African Union Assembly to support African countries in the area of credit ratings, undertakes routine analyses of rating actions assigned by international credit ratings agencies on African countries.
In a statement responding to the downgrade of the Economy by S&P as well as Fitch, it said “The APRM has noted with concern the increase in the number of negative rating actions against African countries by the three international rating agencies. The downgrade of Ghana is the latest such rating actions in which the country’s long-term foreign currency sovereign rating was lowered further into junk grade, from B- to CCC+ with negative outlook and B- to CCC by S&P and Fitch on 5th and 10th August 2022, respectively. This is the third and fourth consecutive rating downgrades on Ghana by the three major international rating agencies since the beginning of 2022.
“The APRM corroborates with the Government of Ghana in expressing its reservations on the decisions by the international rating agencies to downgrade Ghana despite the credit-positive policies being implemented to address various macro-fiscal challenges that the country is facing. Whilst the effects of the COVID-19 pandemic and the severe global shock of the crisis in Ukraine on Ghana, highlighted by S&P and Fitch can be acknowledged, the speculative comments and ratings actions by the international rating agencies in the first half of 2022 materially contributed to the country’s losing access to international financial markets.
“The APRM views the unjustified negative rating actions in Africa since the beginning of 2022 as unwarranted and contrasting the continent’s economic recovery efforts from the devastating impact of the Covid-19 pandemic. This is compounding the complexity of driving the economic recovery process and making current fiscal measures ineffective.
“In view of the continuing trend of negative credit rating actions on the continent, the APRM calls for coordinated response to address the ongoing speculative pessimism by analysts and for ratings to be enablers rather than impediments of economic recovery. The response mechanisms include regulatory measures, developing alternative ratings and alternative fundings sources.”
The Government of Ghana said it was disappointed by S&P’s decision to downgrade Ghana because bold policies had been implemented in 2022 to address macro fiscal challenges and debt sustainability which have been significantly exacerbated by the impact of these global external shocks on the economy.
The government said it would continue to be proactive in addressing the impact of these external and domestic headwinds on the economy and on the lives and livelihoods of Ghanaians.
S&P Global Ratings decided to push Ghana’s debt further into speculative territory, lowering its foreign and local currency sovereign ratings to CCC+/C from B-/B, on Friday August 5.
It said its outlook for the country is negative, “reflecting Ghana’s limited commercial financing options, and constrained external and fiscal buffers.”
The Covid-19 pandemic and the conflict in Russia have magnified Ghana’s fiscal and external imbalances, S&P said.
Demand for foreign currency has been driven higher by several factors, including nonresident outflows from domestic government bond markets, dividend payments to foreign investors and higher costs for refined petroleum products, the agency said.
The nation has also been affected by a lack of access to Eurobond markets, the agency said.
Local authorities have passed a levy on electronic transactions and legislation to tighten exemptions on tax payments including for VAT, among other moves. “While these changes could improve the tax take going forward, the situation remains challenging, and over the first half of 2022, the fiscal deficit has exceeded the government’s ambitious target,” S&P said.
S&P had affirmed Ghana’s ratings in February, as Moody’s downgraded the African nation to Caa1 with a stable outlook.
Reacting to this in a statement on Monday August 8, the Ministry of Finance said ” On 5th August 2022, Standard and Poor’s (“S&P”) Global Ratings downgraded Ghana’s foreign and local currency credit ratings from ‘B-/B’ To ‘CCC+/C’ with a negative outlook. According to S&P, the downgrade is due to intensifying financing and external pressures on the economy.
“In arriving at their decision, the credit rating agency considered: (a) the lingering effects of the COVID-19 pandemic and the severe global shock of the Russian invasion of Ukraine on Ghana and the consequent fiscal and external imbalances; (b) elevated gross financing needs in the face of International Capital Market hiatus (c) the limited commercial financing options; and (d) the credible steps taken by Government to fast-track fiscal consolidation and the passage of key revenue bills.
“The Government is disappointed by S&P’s decision to downgrade Ghana despite the bold policies implemented in 2022 to address macro fiscal challenges and debt sustainability which have been significantly exacerbated by the impact of these global external shocks on the economy.
“Government will continue to be proactive in addressing the impact of these external and domestic headwinds on the economy and on the lives and livelihoods of Ghanaians. Government has implemented key revenue and expenditure measures, including the 30% cut in discretionary expenditures. The delays in the passage of key revenue measures introduced in the 2022 Budget affected revenues performance in the first half of the year. However, all the revenue measures introduced in the 2022 Budget, including the review of the MDA Fees and Charges Bill, the Tax Exemption Bill, the E-Levy Bill, have all now been promulgated by Parliament. These fiscal measures are now in full implementation mode to support our fiscal and debt sustainability policies.”
It added “The Government is committed and is confident that it will successfully emerge from these challenges in the shortest possible time as we have demonstrated the track record to do so in the Akufo-Addo led Government. Our current engagement with the International Monetary Fund for a Programme, incorporating our Enhanced Domestic Program (EDP), is expected to support our drive to restore and sustain macroeconomic stability; debt sustainability and promote growth and job creation whilst ensuring social protection to achieve our vision of a Ghana Beyond Aid.”
Fitch also downgraded Ghana’s economy to ‘CCC’ from ‘B-‘.
This was announced by Fitch on Wednesday August 20, 2022.
The downgrade reflected deterioration of Ghana’s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity, Fitch said.
“In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022,” it stated.
By Laud Nartey|3news.com|Ghana