Standard & Poor’s, an international rating agency, has revised Ghana’s outlook from stable to positive while affirming its ‘B-‘ long-term and ‘B’ short-term foreign and local currency sovereign ratings on the country.
The outlook on the long-term ratings was revised to positive from stable.
Rating agencies use the sovereign wealth funds, pension funds, and other investors of a country to gauge its creditworthiness, especially how these affect its borrowing costs.
According to Standard & Poor’s, the move was influenced by measures that government is currently implementing to strengthen public finances.
“We expect Ghana’s new administration to implement numerous measures that would help strengthen public finances from their current very weak level.”
It also indicated that the review was guided by the acceleration of Ghana’s economic growth as result of increased oil production, supporting the implementation of the corrective fiscal measure.
“We could raise the ratings over the next year if Ghana implements and adheres to measures that sustainably alleviate the substantial pressure on public finances if monetary policy transmission materially improves, and if external weaknesses abate,” the agency added in a statement issued.
“Our positive outlook reflects several developments, many of which, are based on the new administration is tackling the above issues. At the same time, we expect the underlying growth environment to be supportive of their efforts,” the agency added.
It also maintained that related export receipts should help reduce current account deficits and improve foreign exchange reserve levels, particularly as the government’s debt re-profiling exercises are leading to additional portfolio inflows.
“We expect the extended credit facility from the International Monetary Fund (IMF) to help support these efforts,” it added.
Standard & Poor’s, in its assessments, explained that the ‘B-‘ status was as a result of some issues it had with the country’s finances now, even though it was optimistic of things improving.
“State-Owned Organizations, particularly in the energy sector, have a substantial debt stock that we believe could pose a contingent liability to the government. Late payments from this sector have contributed to an accumulation of Non Performing loans (NPLs) in the banking sector,” it said.
Standard and Poor’s, however, maintained they could revise the outlook to stable if Ghana’s economic growth is materially lower than they expect “because we would view this as a potential complication for establishing a firm fiscal consolidation path.”
“We could also lower the ratings if domestic or external debt financing conditions worsen, if the fiscal consolidation trend reverses, or if international reserves decline further,” it added.