Member of Parliament for Ajumako-Enyan-Esiam, Cassiel Ato Forson has told the managers of the Ghanaian economy that they should prepare for further downgrade by credit rating agencies.
In his view, the government has been incompetent in managing the economy.
His comments come after Fitch Rating downgraded Ghana’s Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) to ‘CC’, from ‘CCC’.
Fitch said 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.
It added that 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.
“High Debt Service, Financing Constrained: Interest costs reached 47.5% of revenue in 2021 and 54% in 1H22. Interest payments on domestic debt comprise around 75% of total interest costs. This reflects high yields on domestic debt, which have climbed following a 34% yoy spike in inflation as at August 2022 and monetary tightening, with the Bank of Ghana hiking its policy rate to 22.0%, from 14.5% in February. Yields on the 91-day treasury bill reached 27.0% in August, up from 12.5% in August 2021, and 10-year yields have spiked to above 35% in September, from around 20% in 1Q22,” Fitch said.
Reacting to this in a tweet, Mr Ato Forson who is also a former Deputy Finance Minister said “Can someone alert members of the Ghana’s Economic MIS- Management Team ( EMMT) to get ready for a further downgrade to D? The incompetence is legendary!”
Mr Ato Forson’s former boss at the Finance Minister, Seth Terkper also reacted to the downgrade saying, it was an unwelcome way to start the International Monetary Fund (IMF) negotiations from next week.