An official of Standard Bank Plc has questioned the latest review of Ghana’s rating by Standard & Poor’s (S&P), which gives the country a B credit rating.
The agency’s rating, announced on August 27, 2010, according to Mr Samir Gadio of Standard Bank Plc, was strange.
Mr Gadio, who is the emerging markets strategist of the bank, told Bloomberg, an international business news agency, that Ghana’s “ downgrade would have made sense in late 2008 or early 2009 when the fiscal deficit hit 15 per cent of Gross Domestic Product (GDP)”.
The lowering of Ghana’s rating’ was because of what Standard & Poor, a rating agency, described as the country’s large fiscal deficits and lack of clarity on oil industry laws.
A credit rating is Standard & Poor’s opinion on the general creditworthiness of a country or institution or the creditworthiness of a country with respect to a particular debt security or other financial obligation.
Over the years, credit ratings have achieved wide investor acceptance as convenient tools for differentiating credit quality.
Commenting on the rating in an interview with the Daily Graphic, Mr Seth Terkper, a Deputy Minister for Finance and Economic Planning, said while the country recorded a huge deficit in 2008 with corresponding huge debts owed various contractors, it was worthy of commendation that the government had successfully restored the imbalances in the economy following the implementation of austerity measures.
“Today, we have not only paid up huge parts of the arrears that we inherited, but the macro-economic indicators are stabilising and today even our currency is among the strongest in the world,” Mr Terkper said.
The lowering of the country’s rating to B means a five step below the investment grade and one step below Angola’s B+ assigned in May.
But S&P also says Ghana’s economic outlook looks very good, an assertion Mr Terkper agrees to, but noted that it pointed to a major contradiction in the final outcome of the agency’s rating.
The Deputy Finance Minister argued that Ravi Bhatia, who wrote the report for S&P, got it all wrong especially with the claim that there was a clear lack of regulation on the oil sector.
“Every Ghanaian and for that matter the world knows the work that has gone into the expected consideration of various petroleum-related bills at the last sitting of Parliament.
“Let me add also that we have not only ensured a comprehensive public and civil society consideration of the bills through public forums, but also ensured that the best professionals are engaged in these exercise,” Mr Terkper said.
He said at the time S&P and also Fitch were in Ghana, the public consultations on the oil revenue management bill were ongoing, and the ratings agency could not pretend not to have noted it.
Mr Terkper also questioned the basis of S&P’s claim that there were no clear oil regulations, pointing out that the country had many laws that covered extensively the oil sector, and under which the various exploration and production activities taking place in Ghana had been managed.
“Is it not unfair to create the impression that there are no laws, when you have international oil companies and others investing billions of dollars in our oil reserves?
Why did they if we had no controlling laws? The new bills before Parliament are only intended to strengthen the regulatory regime and also provide guidelines for, especially, the utilisation of the oil revenue,” Mr Terkper said.
Mr Terkper also questioned the basis and the reason for a downgrade now and explained that the rating agency’s assessment would have been accurate had it come early 2009 or if they had reviewed the country’s projections carefully and preparations for first oil.
Responding to claims of a possible delay in first oil by S&P, the Deputy Finance Minister said there was no evidence to support that claim, noting that such claims made industry watchers suspicious of the real motives for the downgrade.