Ghana’s economic outlook is stable

The London-based credit-rating agency, Fitch, has classified Ghana’s economic outlook as stable, contrary to the negative rating that was accorded the country a few weeks ago.

Fitch also put the country’s ability to settle its domestic and foreign debts at B+, which depicts a strong economy on which the international community and investors could rely.

“Economic stabilisation and the soon-to-start oil production support the revision of the rating outlook to stable,” a director at the Fitch sovereign group, Ms Veronica Kalema, said in a country appraisal report issued in London.

She added that the rating agency took cognisance of the country’s strong and untiring efforts that had restored stability through tight monetary and fiscal policies, as well as the use of balance of payment support from the International Monetary Fund (IMF).

Those efforts, Fitch noted, had led to the stabilisation of the cedi since the last quarter of last year and the fall in inflation to a single digit in June this year.

The agency also noted the reduction in the country’s current account deficit, which narrowed to eight per cent of Gross Domestic Product (GDP) at the end of last year, from the region of 21 per cent of GDP in 2008.

At the same time the country’s budget deficit (including arrears payments) declined from 14.5 per cent at the end of 2008 to 10 per cent as of August, this year, when data for the ratings were compiled, while the resultant inflation had also led to about 500 basis points cut in interest rates between the beginning of last year and August this year, thus lowering the cost of borrowing for the government.

“Ghana’s medium term outlook looks much better due to oil production due to start in November/December 2010 and rise to around 120,000 barrels per day within six months.

In addition to direct benefits to growth, the budget and balance of payments, gas processing will lower power costs and spur downstream industries and improve economic diversification,” the rating agency observed.

One of the risks the rating agency identified with the economy had to do with its public finances, a recurrent source of macroeconomic instability, but was quick to acknowledge that the government had cut spending and restricted it to productive sectors, cleared arrears which built up from 2007 and was implementing public finance management reforms to restore stability.

The Minister of Finance and Economic Planning, Dr Kwabena Duffour, described the rating as a good report that reflected the economic realities in the country.

“The report accurately captured what the country is doing, stability efforts and the growth perspective,” he stated.

He said the government had in the last two years consistently stabilised the economy and laid a very good foundation for accelerated and sustained growth, adding that the rating would help enhance the confidence the international community had in Ghana’s economy.

“Investors will have more confidence as has already been exhibited in the COCOBOD credit mobilisation, which was oversubscribed by world class banks,” Dr Duffour said.

Last week , the Ghana Cocoa Board signed a $1.5 billion credit agreement with 18 banks, which have entrusted their funds in the country’s cocoa promoter to purchase cocoa for the 2010/2011 crop season.

Initially sourcing for US$1.2 billion, COCOBOD had to increase the threshold to $1.5 billion as the transaction was oversubscribed at $1.834 billion at a lower interest rate than what was paid last year.

Dr Duffour said the prudent economic policies by the government had resulted in lower inflation and a stronger cedi, which, for the entire year, had held against major international currencies.

Source: Daily Graphic

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