African Reserves

Government did the right thing by defying Fitch and Moody’s downgrade – Economist

Economist and political risk analyst Dr Theo Acheampong said the government’s decision to challenge the downgrades of Fitch and Moody’s is a step in the right direction.

This is because, according to him, there is “a kind of African or African bias in the way the ratings are done”.

Speaking on Monday, February 7, 2022, on the Great morning showhe quoted a statement made by Finance Minister Ken Ofori-Atta some time ago that the risk premium placed on African countries is questionable.

Dr Theo Acheampong also mentioned another example, “if you take South Africa, at that time compared to Brazil, for example, South Africa was paying 5.48% premium whereas on its 10-year dollar-denominated debt and Brazil was doing 4.63% and then Argentina, which serially defaulted in the market, but you compare that with a number of African countries, including Kenya and others, and consistently, you see that the premiums we pay are slightly higher than what would normally have been the case for similar benchmark countries, some of which, arguably, have worse fundamentals than a number of African countries.

“So I think the Ghanaian government’s challenge to Moody’s and Fitch ratings is the right thing to do,” he said.

Fitch downgrades Ghana’s credit rating from B to B- with negative outlook

International ratings agency Fitch has lowered Ghana’s long-term foreign currency issuer (IDR) default rating to “B-” from “B” with a negative outlook.

The downward revision to Ghana’s IDRs and negative outlook reflects the sovereign country’s loss of access to international capital markets in the second half of 2021, following a pandemic-related crisis. [COVID-19] soaring public debt.

Fitch, in a report, said that “this comes against a backdrop of uncertainty over the government’s ability to stabilize debt and against a backdrop of tightening global financing conditions. In our view, Ghana’s ability to achieve planned fiscal consolidation efforts could be hampered by increased reliance on domestic debt issuance with higher interest costs, in the context of an expenditure ratio of already exceptionally high interest/revenue.

He pointed out that Ghana’s effective loss of access to international bond markets increases risks to its ability to meet medium-term financing needs.

Despite remarks that the government’s decision to challenge these ratings was a step in the right direction, Dr Acheanpong said it would not necessarily change the rating outlook itself given the factors that went into the rating; including (Ghana’s) deficits, current account balance, external liquidity, foreign exchange inflows, import cover, foreign exchange reserves, banking system stability, etc.

Moody’s downgrades Ghana to Caa1; but with stable prospects

Subsequently, ratings agency Moody’s also downgraded Ghana’s long-term issuer and senior unsecured debt ratings to Caa1 from B3 and changed the economic outlook from negative to stable.

The downgrade to Caa1 reflects the increasingly difficult task facing the government with its related liquidity and debt issues.

Recently, another rating agency, Fitch, downgraded Ghana’s credit rating to B- from B and the economic outlook to negative from stable.

“Low revenue generation limits the government’s fiscal flexibility and tight financing conditions in international markets have forced the government to rely on costly shorter-maturity debt,” he said.

Moody’s estimates that interest payments will eat up more than half of government revenue for the foreseeable future, which is exceptionally high compared to peers at all rating levels.

Government response

The government disputed Fitch’s notes, pointing out inconsistencies.

Fast forward, Fitch issued another rating which it said was “a correction to the rating action commentary issued on January 14, 2022. It corrects the rating action on Ghana’s senior unsecured debt, which Fitch downgraded, not confirmed”.

The Ministry of Finance has also appealed the downgrading of the country’s credit rating to Caa1 from B3 by ratings agency Moody’s.

He cites the omission of key material information from the assumptions behind some of Moody’s forecasts and projections, such as 2022 fiscal spending controls, 2022 initial fiscal adjustments, and inaccurate statistics from the balance of payments, as well as the appointment of a new senior credit analyst. , only four weeks before a credit rating decision as important as the main reasons.

He also questioned the committee’s refusal to consider postponing such a monumental rating action until the analyst had had sufficient time to better understand the quantitative and qualitative aspects of Ghana’s credit history. .