In just under a month, Ghana has seen its credit ratings downgraded by two international rating agencies: Fitch reviewed the country’s status from a B to B minus while Moody cut Ghana credit rating to CAA1. This is a result of Ghana’s rising inflation and worsening debt that has set projections of its debt to GDP ratio at a staggering 85%. However, Ghana’s government has pushed back against these ratings, insisting that the country is on course to have a great year as pressures from the COVID19 restrictions and disruptions ease off while staying committed to fiscal consolidation and debt sustainability- based on its rather ambitious revenue projections and expects its deficit to fall to 7% in 2022. On the final episode of Business Edge for this week, Tolulope Adeleru-Balogun discusses Ghana’s liquidity crunch with Dr Josh Bamfo, Partner and Head of Transfer Pricing and Economic Adsivory Services at Andersen.
“This isn’t something that developed overnight, “ Dr Bamfo says of Ghana’s debt. “Over time, even though the [Ghana] economy had performed well under the current government – look at the macro-economy, look at the GDP growth rate: on the average, the economy has grown over 6%.” According to him, the downturn occurred in the advent of the coronavirus pandemic which wasn’t anticipated by any country. The President Nana Akufo-Addo administration thus felt the urgent need to save lives and livelihood. The resultant excess spending is by and large, responsible for the liquidity crunch and downgraded rating.
That said, he concedes that Ghana is in danger of falling into a debt crisis, considering that the country got one billion dollars in concessionary loans in 2015, meaning that this strain wasn’t unexpected. To mitigate against it, Ghana as a country embarked on fiscal consolidation and cut expenditure in order for its debt GDP ratio not to exceed 5%.
He explains though, that the COVID pandemic derailed Ghana and set it on course for this debt distress. On the question of the fairness of credit rating agencies immediately downgrading Sub-Saharan countries at the first glimpse of a liquidity crunch; Dr Bamfo says it is not an invalid assertion, seeing that the United States which has the highest credit rating possible, had its debt to GDP ratio rise to 130% but didn’t get downgraded.
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