Debt level sustainable despite Fitch downgrade – Finance Ministry

January 18, 2022 / Comments (0)

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The Finance Ministry has moved to calm nerves over concerns about the country’s mounting debt situation – which has led to rating agency Fitch downgrading it – saying the rate of debt accumulation has improved.

Fitch Ratings on Friday, January 14 downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’, with the outlook negative. According to the agency, the downgrade reflects the country’s loss of access to international capital markets in second-half of last year, following a pandemic-related surge in government debt.

It added that the downgrade also comes in the context of uncertainty about government’s ability to stabilise debt and against a backdrop of tightening global financing conditions.

“In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high interest expenditure to revenue ratio…Ghana’s effective loss of market access to international bond markets increases risks for its ability to meet medium-term financing needs.

“In our view, Ghana has sufficient liquidity and other available external financing options to cover near-term debt servicing without Eurobond issuance. However, there is a risk that non-resident investors in the local bond market could sell their holdings – particularly if confidence in government’s fiscal consolidation strategy further weakens, placing downward pressure on its reserves,” Fitch stated in its report.

But despite this downgrade, the Finance Ministry has released a statement responding to a publication by Bloomberg on the country’s debt situation that was headlined: ‘Ghana debt moves deeper into distress as investors lose patience’, saying the country’s debt situation is still sustainable.

“The current 78.4 percent debt-to-GDP ratio as at the end of November 2021 indicates rather a reduction in the rate of debt accumulation (i.e. declined by a half to 18 percent as at November 2021 from 34 percent in 2020). This attests to an improvement in our debt and liability management, contrary to what the article seeks to suggest. Furthermore, with the positive primary balance target for 2022 – one of the key fiscal anchors in 2022 – Ghana should see improved stability and reduction of the debt to GDP ratio in 2022 and through the medium-term.”

According to the ministry, the current loss of patience on the part of investors – alluded by the Bloomberg article – is not as a result of the economy plunging into debt distress, but rather due to the impasse in Parliament over the E-levy.

“It is most unfortunate to note that foreign investors and market participants are on edge following the impasse in Parliament in relation to passage of the E-levy bill. The market seems now to be pricing into our bonds the perceived risks of having a slim majority in Parliament and the consequences thereof. The markets also seem to be concerned that this might impact government’s ability to successfully pass and implement some of its major revenue policy measures as presented in the 2022 Budget,” the ministry said.

The ministry, however, has further assured that the economy has strong fundamentals which can still attract investors.

“Despite the global challenges which exist on the back of the COVID-19 pandemic – especially in emerging markets, with risks such as financial stress and sluggish progress on vaccination as recently cited by the World Bank – the ministry would like to reassure all its investors that Ghana’s fundamentals remain strong as attested to by our growth in Q3-2021; the Ghana Revenue Authority exceeding its target in 2021; and our strong reserves position.”


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