In an insightful discussion on Moody’s recent upgrade of Ghana’s long-term local and foreign currency issuer rating, the Head of Research at the Danquah Institute and Lecturer at GIMPA Dr. Frank Bannor has shared deep thoughts on the implications of this development.
Dr. Bannor laid out a comprehensive analysis of the country’s economic progress and challenges, emphasizing both the positive strides made and the crucial steps needed to sustain growth.
This development, according to Dr. Bannor, signaled a gradual improvement in the country’s economic health, particularly after a difficult period marked by economic challenges.
“Moody’s has upgraded Ghana’s long-term local and foreign currency issuer rating outlook from the previous levels of the CA3 and CA to CA2, with a positive outlook.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
He highlighted that this upgrade is based on several factors, including the country’s GDP growth rate of 6.9% in the second quarter and the significant progress made in debt restructuring, particularly concerning domestic debt and bilateral commercial debt.
Economic Recovery in Context
Dr. Bannor acknowledged the economic difficulties Ghana has faced, but he pointed out that many of these challenges were driven by external factors.
“We all agree to the extent that as a country, we find ourselves in an economic quagmire, which was driven largely by external and exogenous factors of which you can rule out.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
While acknowledging the negative impact of these external factors, Dr. Bannor also underscored the role of internal policies that have contributed to the country’s recovery.
“As a country, yes, both the monetary and fiscal policies that have been put in place are actually yielding results. And for that matter, the international community takes cognizance of these important results.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
Debt Restructuring and Economic Gains
The success of Ghana’s debt restructuring efforts was a significant factor in Moody’s upgrade.
“Our bilateral commercial debt restructuring, which took place not long ago, saw about 90% of our creditors subscribing to restructure their debt, which is bound to give us I think about $4.8 billion in relief.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
He stressed that this relief would play a crucial role in easing the burden of debt repayments and supporting further economic recovery.
On Accessing International Financial Markets
While the upgrade is a positive signal. Dr. Bannor cautioned against assuming that it immediately translates into a need for the government to borrow from international financial markets.
“You only borrow when there is a fiscal deficit. this is basic econmics, If your expenditure has not exceeded revenue, then of course, there wouldn’t be any economic sense for you to just wake up and say you are going to the market to borrow.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
Dr. Bannor highlighted that Ghana’s revenue and expenditure projections, as outlined in the mid-year budget review, suggest that the country may not need to rush into borrowing.
According to Dr. Bannor, In the media budget review, expenditure was originally projected at about GHS 220 billion, while revenue was projected to hit around GHS 178–180 billion. So, if we are not projected to have that huge fiscal deficit, then there wouldn’t be any need for you to access the international financial market.
The Revenue Mobilization Challenge
A critical part of Dr. Bannor’s argument was the need for Ghana to address its revenue mobilization challenges.
He pointed out that while government spending plays a key role in driving growth, the country’s inability to raise sufficient internal revenue remains a major problem.
“Our major problem, and I keep saying this, has not got to do with government spending, but it has got to do with our inability to raise enough revenue internally…“If you look at the sub-region, from 2000 until 2021, the best in terms of tax-to-GDP revenue that we have done was actually in 2021 when we had a tax-to-GDP revenue of about 14.1% taking grant outside.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
Despite improvements in recent years, Dr. Bannor emphasized that more needs to be done to increase the percentage of the population paying taxes.
“Less than 10% of Ghana’s over 30 million plus population pay direct taxes. if we want to look at the actusl figire This is about 2.3 million of the entire population, which currently sits at about 34.3 million.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
Government Spending and Economic Growth
Dr. Bannor also touched on the relationship between government spending and economic growth, particularly in the context of Ghana’s reliance on IMF programs in recent years.
He noted that; In Sub-Saharan Africa, including Ghana, government spending drives growth. That is why in situations where government spending is restricted, such as during IMF programs, growth tends to slow.
In his closing remarks, Dr. Bannor stressed the importance of implementing reforms to broaden the country’s tax base and increase revenue.
“The most important conversation for government and for any stakeholder who is a party and much interesed in this dicourse should be: what the measures, what are the reforms that any government can take to broaden the tax [base] in order words to formalize the economy to bring in more people to cater.”
Dr. Frank Bannor Head of Research at the Danquah Institute and Lecturer at GIMPA
Dr. Bannor’s analysis provided a balanced view of Moody’s upgrade, acknowledging both the positive developments and the challenges that remain for Ghana’s economy.
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