On Friday, April 17, 2020, while Ghanaian authorities were assessing the performance of the measures put in place to deal with COVID-19, Moody’s, a credit rating agency, released a report that maintained the rating for Ghana but revised the outlook from positive to negative.
The negative outlook signals low confidence and uncertainty about the repayment capability of the Ghanaian economy going forward. This is negative news. This is a negative development as the same Moody's revised upward from stable to positive early this year.
Do we blame this on COVID-19 pandemic? It depends on the appreciation of economic data. The revised and finalised economic data for Ghana showed uninspiring pre-2020 economic data that reflects negative primary balance, low international reserve, low revenue compared to expenditure. Also, 2019 showed very high fiscal deficit and deteriorating debt-to-GDP ratio, general liquidity challenge and cost of tradable bonds moving up the yield curve.
Above all, the fiscal deficit implied a clear abandonment of the Fiscal Responsibility Act as the upper ceiling statutory deficit level cannot be complied with.
The 2020 revised projections presented the economy as a fragile framework to investors and rating agencies. The appetite to grab funds everywhere and eat in the same bowl of hitherto weak economies crying for debt relief tells an ordinary observer that uncertainty surrounds us.
The point, already known, is that rating agencies use both historical data and prospects of the economy to do their evaluation. Hence, the economy was already attracting bad rating comments before COVID-19.
But can we blame COVID-19? Yes. Why? Because COVID-19 has worsened revenue prospects of the economy, suspended the fiscal responsibility framework and demonstrated in the past few weeks that the country is resource-hungry and “debt aggressive”.
We cannot blame COVID-19 for the historical economic outturn but the pandemic has seriously affected the prospects of the economy and the negative outlook can be squarely blamed on coronavirus pandemic.
However, there is a regulatory principle in credit rating that rating agencies ought to measure actions being taken by economic managers in a crisis rather than rating comments, which will rather worsen the ability of economic managers of countries. Moody’s should have focused on the efficacy of measures taken, especially when the difficulties in repayment are known. This way, the rating decision will fairly accommodate the measures adopted by the economic managers.