An economist, Professor Godfred Alufar Bokpin, has chastised the Akufo–Addo administration, as being indifferent to any advice that stakeholders have suggested on the Ghanaian economy, giving credence to reports that Finance Minister Ken Ofori-Atta, has been running a one man show at the ministry, listening to no one, including the Economic Management team led by Vice-President Dr Alhaji Mahamudu Bawumia.
According to him, Ghana’s economic crisis is due to the government’s unwillingness to admit that it has mismanaged the economy and needs help.
This comes as Rating agency, Fitch, has downgraded Ghana’s Long-Term Local – and Foreign-Currency Issuer Default Ratings (IDRs) to ‘CC’ or further junk status, from ‘CCC’.
This is the second time in 2022, that it has downgraded Ghana’s credit worthiness. It is also coming two days after President Akufo-Addo, took a swipe at ratings agencies at a UN Conference for unfairly assessing and rating
African countries were poor at a time the global economy was going through a difficult period.
According to Professor Bokpin “If you check all that we have said from last year to date, you’ll see that there was no theory. In fact, the theory gives grounding and the predictive framework we get. We are in this because the government failed to listen.
“We are in this because of the posture of the government. We are in this because of our own actions and inactions so we cannot outsource all our problems to Russia–Ukraine war,” he told Samson Lardy Anyenini.
The Fitch downgrade, it said, reflects the increased likelihood that Ghana will pursue a debt restructuring given mounting financing stress, with surging interest costs on domestic debt and a prolonged lack of access to Eurobond markets.
“There is a high likelihood that the International Monetary Fund support programme currently being negotiated will require some form of debt treatment due to the climbing interest costs and structurally low revenue as a percentage of Gross Domestic Product”.
“We believe this will be in the form of a debt exchange and will qualify as a distressed debt exchange under our criteria”, it explained.
The rating agency, in August 2022, downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CCC’ from ‘B-‘.
In a release posted on its website (fitchratings.com), the agency indicated that, it normally does not give credit ratings below CCC.
“Fitch Ratings has downgraded Ghana’s Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) to ‘CC’, from ‘CCC’. Fitch typically does not assign Outlooks to issuers with a rating of ‘CCC’ or below,” parts of the release read.
The ‘CCC’ rating implies that Ghana is considered a “junk” country in terms of investment and any investor who buys a bond issued by the Government of Ghana is at a high risk of not getting his/her investment.
On the reasons for the downgrade to CC, Fitch indicated that “The downgrade reflects the increased likelihood that Ghana will pursue a debt restructuring given mounting financing stress, with surging interest costs on domestic debt and a prolonged lack of access to Eurobond markets. There is a high likelihood that the IMF support programme currently being negotiated will require some form of debt treatment due to the climbing interest costs and structurally low revenue as a percentage of GDP.
“We believe this will be in the form of a debt exchange and will qualify as a distressed debt exchange under our criteria. The government has not confirmed or denied press reports that Ghana is preparing to negotiate a restructuring.
“Interest costs on external debt are lower than for domestic debt and near-term external debt amortisations appear manageable. However, we believe there could be an incentive to spread a debt restructuring burden across domestic and external creditors and therefore do not have a strong basis to differentiate between Foreign- and Local-Currency ratings at this time,” it added.
The government has not confirmed or denied press reports that Ghana is preparing to negotiate a restructuring.
The rating agency added interest costs on external debt are lower than for domestic debt and near-term external debt amortisations appear manageable.
“However, we believe there could be an incentive to spread a debt restructuring burden across domestic and external creditors and therefore do not have a strong basis to differentiate between Foreign- and Local-Currency ratings at this time”.
The country’s interest costs reached 47.5% of revenue in 2021 and 54% in the first half of 2022. Interest payments on domestic debt also hovered around 75% of total interest costs.
This, Fitch said, reflects high yields on domestic debt, which have climbed following a 34% year-on-year spike in inflation as of August 2022 and monetary tightening, with the Bank of Ghana hiking its policy rate to 22.0%, from 14.5% in February 2022.
Again, yields on the 91-day Treasury bill reached 27.0% in August 2022, up from 12.5% in August 2021, whilst 10-year yields have spiked to above 35% in September 2022, from around 20% in quarter one 2022.
Fitch also said it expects external financing access to stay limited until at least an IMF programme is agreed, as Ghana is likely to remain locked out of Eurobond markets, which had been the country’s regular source of external financing.
The government obtained a $750 million term loan from African Export-Import Bank (BBB/Stable this year and $250 million in syndicated loans from global commercial banks. It can also use its sinking fund.
“We estimate Ghana faces around $3 billion of external debt service costs in 2023, including amortisation and interest”, it added.
Prof Bokpin, said this when contributing to Ghana–IMF talks on JoyNews’ Newsfile on Saturday.
Official negotiations between the government and the International Monetary Fund (IMF) for an economic programme are expected to take off from Monday, September 26, 2022.
The IMF mission is coming to Accra after a request was made by the government for an economic programme to help support Ghana’s balance of payment.
This is coming on the back of previous engagements and discussions with the IMF to try and understand the current challenges facing Ghana’s economy.
The IMF team was earlier in Ghana to pick up what has been described as an “economic data gathering exercise”.
This is expected to influence the Fund’s proposal to the government on moves to turn around the economy.
The IMF has also engaged other interest groups, including civil society groups, business associations and government institutions.
Meanwhile, Prof Bokpin has expressed displeasure over the government’s decision to seek external support.
According to him, previous supports from the IMF, have failed to achieve its intended expectations.
He maintains that any support from the Bretton Wood institution, will do very little in current times.