In a recent technical support mission to the Republic of Ghana, international experts uncovered critical issues affecting the country’s engagement with credit rating agencies (CRAs) and its sovereign credit ratings.

The mission, comprising teams from the African Peer Review Mechanism (APRM), the United Nations Economic Commission for Africa (UNECA), and the Collaborative Africa Budget Reform Initiative (CABRI), aimed to assess Ghana’s capacities, challenges, and key success factors in managing its international credit ratings.

The report shed light on Ghana’s rocky relationship with CRAs, particularly highlighted by a public dispute in September 2020 when the government contested rating downgrades by S&P Global and Fitch Ratings.

The Government of Ghana was of the view that “rating agencies were punishing it for choosing to prioritize saving lives and livelihoods through once-off expenditures in response to Covid-19 shocks and temporary economic adjustments over saving the economy through expenditure cuts.”

Back then, President Nana Akufo-Addo stated that “the government’s priority of saving lives was more justifiable as an economy could later be revived.”

However, Ghana’s fiscal challenges escalated further in late 2021, notably with the rejection of a proposed digital transaction levy triggering concerns among Eurobond holders.

According to the report, this event catalyzed a selloff of bonds, amplifying fears over the country’s debt sustainability and fiscal deficit.

“The country’s fiscal challenges ballooned when lawmakers in Ghana’s legislature strongly opposed the government’s proposal to introduce a 1.75% levy on all digital transactions, including mobile money payments.
“The opposition against the Electronic Transaction Levy proposal in parliament triggered panic amongst Eurobond holders, sparking a huge selloff.”
African Peer Review Mechanism Report

The report also noted that these developments significantly influenced Ghana’s credit ratings, prompting actions by international CRAs.

Moreover, liquidity pressures and debt restructuring issues compounded Ghana’s economic woes, leading to credit rating downgrades and negative market sentiments.

The report emphasized how these actions by CRAs exacerbated investor uncertainty and impacted Ghana’s access to international capital markets.

“Rating agencies took negative speculative actions and drove ‘negative noise’ through their media statements, commentaries, and research reports on Ghana in early 2022.”
African Peer Review Mechanism Report

Mission’s Recommendations

Despite these challenges, the mission report identified key areas for improvement.

One critical recommendation is the need for coherent messaging across Ghana’s government institutions to align with CRA expectations.

The report underscored the importance of consistent and strategic communication, not only in data reporting but also in policy messaging, to enhance credibility and transparency.

Furthermore, the report highlighted gaps in institutional arrangements, particularly within the Ministry of Finance, which is responsible for engaging with CRAs.

It identified weaknesses in technical capacity, coordination, and proactive engagement with international agencies.

Strengthening these institutional arrangements, including establishing dedicated teams and formalizing coordination between ministries and the central bank, is crucial to improving Ghana’s credit rating outlook.

Furthermore, the report called for reforms in fiscal management, revenue administration, and public financial policies to stabilize the economy and restore investor confidence.

It is worth noting that Ghana has embarked on structural reforms supported by a $3 billion IMF Extended Credit Facility. This program aims to stabilize the economy, contain inflation, and address fiscal challenges, underscoring Ghana’s commitment to improving its creditworthiness and economic resilience.

As such, the mission report underscored the complex interplay of economic, fiscal, and political factors shaping Ghana’s credit ratings.

It highlights the urgent need for reforms, stronger institutional capacity, and coherent policy messaging to navigate the challenges posed by international credit rating assessments.

Ghana’s efforts to address these recommendations will be crucial in restoring investor confidence and fostering sustainable economic growth.