‘Ghana’s Credit Ratings May Affect Policy Credibility’

Chief Executive Officer (CEO) of Eclipse Microfinance Limited, Mr Kafui Amegah has stated that Ghana’s credit rating is likely to have an impact on the government’s policy credibility.

He said government’s policy credibility has been significantly weakened, following two years of larger-than-expected budget deficits.

He explained that policy credibility is important when it comes to assessing government agents’ actions in light of economic constraints and whether they will implement announced policies.

Mr Amegah made this claim in an interview with The Finder on Ghana’s credit ratings by Fitch.

Standard & Poor’s credit rating for Ghana stands at B. Fitch’s credit rating for Ghana is B+. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Ghana, thus having a big impact on the country's borrowing costs.

The indicators of these ratings is that Real Gross Domestic Product (GDP) growth slowed down sharply to an estimated 4.2% in 2014 from 7.3% in 2013 as domestic activities were hampered by the power outages, a sharp fall in the currency and rising inflation.

Inflation was 17% in December 2014 compared to 13.5% in December 2013 following price adjustment in petroleum and utilities as government removed subsidies and the sharp depreciation of the cedi. Inflation eased slightly to 16.9% in May 2015.

Macroeconomic challenges continue to be driven by high wage bills and rising interest cost; fiscal deficit declined slightly to an estimated 9.4% of GDP in 2014 from 10.4% in 2013.

With this, the CEO added that the ratings are also important to lenders, both domestic and international, who may perceive the government as likely to range on repaying financial commitments.

“For Ghana to be able to improve on these ratings means her ability to borrow on the international market may be curtailed. The country may not be able to raise capital on the international market as she did earlier or may do so at a higher cost,” he said.

He said this could be fatal for a low-middle income country like Ghana, which needs to diversify from donor funds and grants as major source of financing for development.

“Already, Ghana’s domestic debt is high at 48% of total government debt. The perception of lenders is that Ghana may not be able to repay their bond when it matures,” he added.

He, therefore, called on government to do all it can to make the country’s economy better to attract the needed investors and for local businesses to grow.