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Credit Ratings Agency, Fitch says the $1bn Eurobond issue and the annual Ghana Cocobod syndicated loan, which this year has generated $1.7bn, informed the decision to maintain Ghana�s sovereign credit rating at 'B' with negative outlook. The new inflows have alleviated some short-term pressures on reserves and the local currency. However, a lasting reduction in funding pressures, for both the fiscal and current account deficits, is unlikely until an IMF programme is agreed and a credible deficit reduction strategy is implemented. Fitch Ratings has affirmed both Ghana's long-term foreign and local currency Issuer Default Ratings (IDR) at 'B' with negative outlook. Fitch has also affirmed Ghana's short-term foreign currency IDR at 'B' and Country Ceiling at 'B'. The issue ratings on Ghana's senior unsecured foreign and local currency bonds have also been affirmed at 'B'. Key rating drivers behind the affirmation reflects the following factors: The government began talks with the IMF in mid-September over a fund programme. However, Fitch expects negotiations to be protracted with a deal expected only next year. The government will probably seek IMF's endorsement for the country's 'home-grown' strategy, but given its recent track record, may find the IMF's likely suggestion of faster fiscal consolidation challenging. Notwithstanding these risks, Fitch expects a programme will likely be agreed. The supplementary budget announced in July forecasts the budget deficit in 2014 to widen to 8.8% of GDP from 8.5%. Curtailing current expenditure and arrears, while boosting revenue, remains challenging for the government, and as a result Fitch forecasts a deficit of 10.1% of GDP for 2014. The magnitude of fiscal consolidation in the coming years will depend on the path of deficit reduction agreed with the IMF. Two years of double-digit deficits, combined with a cumulative 45% depreciation of the currency since January 2013, has seen debt jump to 61.7% of GDP in 2013, based on Fitch's calculations, from 39% in 2011 - well above the 'B' median of 43.7%. The Bank of Ghana's (BOG) role in funding Ghana's budget deficit in the first half of the year illustrates the financing challenges the government faces. Yields of 182-day Ghanaian Treasury bills jumped above 25% in September, from 19% in January 2014. The authorities highlighted a liquidity shortage in the Ghanaian cedi as institutions cut their holdings of government securities, contributing towards the central bank monetising $1bn or 90% of the budget deficit during the first half of 2014. Fitch believes that increased risk aversion could be another reason for the yield increase in T-bills. Challenges in the FX market have intensified since January 2014, with the Ghanaian cedi falling 34% between January and September. International reserves fell to 2.2 months of current external payments (CXP) in August from 2.7 months at end-2013. Excluding swap facilities used to bolster reserves, CXP cover is only 1.5 months. The gap between the interbank rate and the central bank transaction rate, the rate at which BOG supplies USD to the market, widened by 40 cents since May. Parallel exchange markets are creating distortions in the domestic economy and exacerbating the shortage of dollars. Fitch expects reserves to face pressure early next year due to seasonal demands for foreign exchange if an IMF deal is not reached. Fitch forecasts the current account deficit will narrow to 10.1% of GDP in 2014 from 12% in 2013, due to falling imports as the sharp depreciation of the Ghanaian cedi suppresses import demand. The onset of domestic gas production from the Jubilee oilfield, which will offset more expensive crude oil imports used in power plants, could improve the outlook for the current account deficit more than forecast. Ghana's weak fiscal and external positions are the key rating weaknesses and are adversely impacting macro-economic stability. Fitch expects GDP growth to moderate to 6.1% in 2014 from 7.1% in 2013, although significant downside risks remain if Ghana's fiscal and external challenges intensify. Ghana's weaker growth outlook over the next two years will complicate fiscal consolidation. The ratings are supported by Ghana's strong governance record and democratic history, highlighted by the peaceful transfer of power in 2012 and respect for judicial due process. Ghana's business environment compares favourably even with 'BB' median countries. This is reflected in Ghana's ability to attract foreign direct investment, which at 7% of GDP is well above Nigeria, Gabon, Zambia, Kenya and Angola. Rating Sensitivities Negative: the main factors that individually, or collectively, could trigger negative rating action include: a further deterioration in external finances and an erosion of Ghana's international reserve position, jeopardising the country's external financing capacity; increased domestic financing constraints, further deterioration in fiscal accounts and government debt dynamics; worsening economic performance and reduced economic stability. The Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade. However, future developments that may, individually or collectively, lead to a revision of the Outlook to Stable include: -An effective fiscal consolidation that places debt-to-GDP firmly on a downward trajectory; an improvement in Ghana's external position reflected in a narrowing of the country's current account deficit and an improvement in international reserves KEY ASSUMPTIONS Fitch assumes Ghana's GDP growth will remain above 5% in 2014-2015 and in the medium term. This in turn will depend on oil production coming on stream as expected; the continued development of the gold sector; and further investment in infrastructure. Fitch assumes an IMF programme is agreed and fiscal consolidation continues. Fitch assumes no sustained deep fall in commodity prices that would undermine an already weak external position.