Professor Eric Osei-Assibey, an Associate Professor of Economics at the University of Ghana, has bemoaned the timing of the current downgrade of Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from B to B- by the international rating agency, Fitch.
According to him, the downgrade is coming at a time that the economy is going through serious difficulties due to the impact of the pandemic and so, he believes, it is going to worsen the country’s already bad economic situation.
“I think that the timing, in my view, is not good. Joseph Stiglitz said it during the financial crisis time that most of these rating agencies, the time that they come in, they’re often unfounded, they’re not justified and they tend to worsen these countries’ economic situation in most cases apart from looking at the conflict of interest issues that one can talk about”.
Prof. Osei-Assibey
Speaking on PM Express on Monday night, Prof. Osei-Assibey explained that downgrading the country’s credit rating at a time when the economy is going through challenges, will cause a shock to the macroeconomic environment. He intimated that through this act, the country’s fiscal deficit will deteriorate further and “you’re going to see your currency depreciating much faster and then in effect it worsens the already bad situation”.
The economist stated that most international credit rating agencies do not help developing countries such as Ghana because they turn to downgrade the rating when the economy is not doing well and vice versa. He indicated that the cost of borrowing will go up further and investors are likely to withdraw their funds since investors thrive on information and expectations.
Need to prioritize expenditure
Also speaking on the program was an Associate Professor of Finance at the University of Ghana Business School (UGBS), Lord Mensah, who advised the government to try to manage its expenditure at this time since the country’s downgrade with a negative outlook is likely to worsen the economic woes.
Professor Lord Mensah contended that revenue mobilization at this current time is very difficult because most of the economic agents are still struggling to weather the storm of the pandemic. He believes, the current bad economic situation was the reason why the government faced resistance from the general public when it planned to impose new taxes this year.
“We have to look at expenditure side. Be bold enough to look at expenditure side and look at how we can prioritize our expenditure. And with that, we should be able to take it as a project for the next five years keep on reducing our expenditure. I mean, if for nothing at all, keep the expenditure fixed over some years and you would realize that we should be able to sail through this debt situation”.
Professor Lord Mensah
Fitch downgrades Ghana’s credit rating
International rating agency, Fitch, in its January 2022 report, downgraded the country’s credit rating from B to B- with a negative outlook, citing the sovereign’s loss of access to international capital markets in the second-half of 2021, following a pandemic-related surge in government debt.
According to Fitch, “there is a risk that non-resident investors in the local bond market could sell their holdings, particularly if confidence in the government’s fiscal consolidation strategy further weakens, placing downward pressure on its reserves”.
Last week, Bloomberg warned in a report that Ghana’s debt has moved deeper into distress and investors are losing confidence in holding the country’s debt. In response, the Ministry of Finance indicated that Bloomberg’s article gave wrong historical debt to GDP figures “which may give investors some cause for concern, if not corrected”. The Ministry of Finance assured that Ghana should see improved stability and reduction in the debt to GDP ratio in 2022 and through the medium term.
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