Ghana’s slow fiscal consolidation could lead to increased debt - Fitch report
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Ghana’s slow fiscal consolidation could lead to increased debt - Fitch report

A slower than expected fiscal consolidation puts Ghana at risk of a higher public debt trajectory and could be a source of downward pressure on the country’s ratings, Fitch Ratings warned in a recent report.

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The government expects fiscal deficit to reach 11.4% of the Gross Domestic Product (GDP) in 2020, according to a revised budget approved by lawmakers earlier this month, signifying an increase from 4.7 percent in its initial budget.

That figure could rise even higher to 12.2 percent of GDP, the 2021-2024 budget guidelines released last week show.

The Finance Ministry revealed this after securing parliamentary approval to temporarily suspend the 5 percent-of-GDP deficit ceiling stated in the Fiscal Responsibility Act.

Fitch report: Ghana’s slow fiscal consolidation troubling

Ghana's Finance Minister, Ken Ofori-Atta, Source:
Source: UGC

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Read Fitch's full report below;

Ghana’s plans to pursue fiscal consolidation more slowly than the government had previously indicated may lead to a higher public debt trajectory and could be a source of downward pressure on the country’s ratings, although the projections need to be seen in the context of upcoming elections, says Fitch Ratings.

The government’s revised budget, approved by parliament on 7 August, forecasts the deficit to reach 11.4% of GDP in 2020, up from 4.7% in its initial budget. The 2021-2024 budget guidelines released on 17 August indicate that the 2020 fiscal deficit could rise even higher to 12.2% of GDP. The finance minister has received parliamentary approval for a temporary suspension of the 5%-of-GDP deficit ceiling stipulated in the Fiscal Responsibility Act (FRA).

We had expected a substantial, temporary deterioration in the budget balance in 2020, in line with the shock from the coronavirus pandemic. However, the pace of fiscal consolidation over the medium term outlined in the government’s latest forecasts represents a bigger departure from our assumptions. Projections in the budget guidelines suggest that the deficit will remain above the 5% ceiling until 2022, but still record a primary deficit even in 2024, against the FRA requirement of a primary surplus. Failure to substantially narrow fiscal deficits in 2021-2024 may result in a significant increase in the ratio of public debt to GDP.

Ghana’s ratios of public debt and interest costs relative to fiscal revenue are very high compared with the median for other ‘B’ rated sovereigns, pointing to the urgency of fiscal consolidation. In April, when we affirmed Ghana’s rating at ‘B’, with a Stable Outlook, we highlighted a weakening of public finance metrics relative to our base-case scenario, for example, due to failure to implement a credible consolidation strategy after the election in December 2020, as a factor that could lead to negative rating action.

The government’s projections may signal that the coronavirus crisis has weakened the administration’s previous commitment to a fiscal adjustment beginning in 2021. Nevertheless, the medium-term fiscal forecasts are subject to a high degree of uncertainty. Notably, the general election could influence the direction of policy.

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Ghana’s issuance of a USD3 billion Eurobond in February 2020, supports its short-term external liquidity position.

The IMF also approved a USD1 billion emergency Rapid Credit Facility for the country in April. The central bank’s financing of part of the fiscal deficit further eases the need for external funding. earlier reported that President Nana Akufo-Addo on Sunday, August 16, 2020, gave Ghanaians an update on the deadly pandemic, Coronavirus.

It was the President’s 15th COVID-19 address to the nation.

President Akufo-Addo said Ghana is now in a position to test every single passenger that arrives in the country to avoid the spread of the virus.

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Source: Yen Ghana

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