In the midst of the current global economic crisis, President Nana Addo Dankwa Akufo-Addo has expressed regret at the downgrading of 18 African economies by international credit rating agencies.
According to Mr. Akufo-Addo, the downgrade took place despite the fact that all economies worldwide are still feeling the effects of last year’s pandemic.
On Friday, February 4, Moody’s Investors Service (“Moody’s”) altered the outlook from negative to stable and lowered the Government of Ghana’s long-term issuer and senior unsecured debt ratings to Caa1 from B3.
The downgrade to Caa1, according to Moody’s reflected the increasingly difficult task the government faced addressing its intertwined liquidity and debt challenges. Weak revenue generation constrains government’s budget flexibility and tight funding conditions on international markets have forced the government to rely on costly debt with shorter maturity.
Moody’s estimated that interest payments would absorb more than half the government’s revenue over the foreseeable future, which is exceptionally high compared to peers at all rating levels. As a remedy, the government has proposed sharp fiscal consolidation and a switch to borrowings from external partners on more favourable terms.
“However, the strategy comes with sizeable implementation risks, especially in a still-fragile post-pandemic environment and while international market creditors price in very wide risk premia. While Ghana’s external buffers and moderate external debt amortization schedule in the next few years afford the government a window of opportunity to deliver on its strategy, balance of payments pressures will build up the longer government’s large financing requirements have to rely on domestic sources.
“The stable outlook balances Ghana’s significant fiscal challenges, large refinancing needs and constraints on access to funding against the government’s pre-pandemic track record of relatively effective policy delivery and maintenance of a variety of funding sources. Ghana’s institutional framework and dynamic economy remain key credit supports, with economic growth forecasts of around 5% over the medium term,” Moody’s said.
But in a keynote speech delivered at the 15th Edition of the European Development Days (EDD) in Brussels, Belgium, on Tuesday, 21st June 2022, President Akufo-Addo said “The World Bank also tells us that, subsequent to the conflict, the number of poor people in sub-Saharan African countries would rise from four hundred and thirteen million (413 million) to four hundred and sixty-three million (463 million) this year, an increase of fifty million (50 million) persons.”
He added “In the midst of this, eighteen (18) African economies have experienced credit downgrades, even when all economies are suffering adverse fallouts from last year’s pandemic, and we, in Africa, are also facing the risk of so-called “taper-tantrums”, as investors exit our markets, thereby exacerbating the increasing cost of borrowing” he further added.
He further said that, at the moment, support for non-IMF programme countries to alleviate the debt burden is limited, as the initial facility designed by the G20 countries to offer respite to economies with elevated debt challenges – the Debt Service Suspension Initiative (DSSI) – has expired since December 2021, and has not been renewed.
“Then, there is the matter of the “African Risk Premium”, when African entities are borrowing from the market, which increases the cost of capital, and which must be addressed, especially as Africa provides the highest return on investments obtainable anywhere, and has a good record of debt repayment,” the President said.
The combined effects of the debt situation, rising interest rates and rising cost of living are resulting in severe macroeconomic and financial instability, the President stated, adding that “what is clear, he pointed out, is that the ensuing damage cannot be cured so easily with the limited fiscal tools at our disposal and national policy adjustments,” he added.
