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S&P predicts decline in country’s economic growth• Raises long-term local and foreign currency sovereign credit rating to ‘B’ 

By: Kester Aburam Korankye
Category:
Mr Ken Ofori Attah- Minister for Finance

Ghana’s economic growth is expected to slow down to about 5.4 per cent this year as a result of lower growth in oil production and a fall in cocoa output compared to 2017, Standards and Poor's (S&P) Global has hinted. 

“Oil production is set to average around 175,000 barrels per day (b/d) in 2018, and the remedying of technical problems in the Jubilee field by year-end 2018 should push production to about 210,000 b/d by 2019.

Agriculture growth will likely be restrained by unfavourable prospects for the cocoa sector owing partly to aging cocoa plants”.

 However, the rating agency has raised the country’s long-term local and foreign currency sovereign credit rating to 'B' from 'B-.'

In a statement released on September 14, S&P Global said: "The upgrade reflects our assessment that Ghana's monetary policy effectiveness has improved, albeit from a low base, and will support the credibility of the inflation-targeting framework over the period."

It further cited the improving banking sector stability and lower inflation as factors that supported its view that the effectiveness and transmission mechanism of the country's monetary policy have improved.

The agency also revised its transfer and convertibility (T&C) assessment to 'B+' from 'B.

It cited the improving banking sector stability and lower inflation as factors that supported its view that the effectiveness and transmission mechanism of the country's monetary policy have improved, hence the decision to revise the T&C from 'B' to 'B+'

The new rating is expected to endear the economy to global investors, as it is a sign of increased faith in economic activities by the rating agency. This should translate into reduced risk in domestic investments and increased appetite for other investors.

Outlook 

The report said Ghana's fairly robust growth prospects, decreasing inflation and narrower current account deficits against risks from still-high budget deficits and a high stock of public sector debt.

“We could lower our ratings if Ghana's economic growth is significantly lower than we expect and if its policymaking effectiveness were to weaken, for example, if fiscal deficits were to be materially larger than our expectations,” the statement said. 

On the other hand, it said: “We could consider raising our ratings if Ghana implements and adheres to measures that materially alleviate pressures on public finances and reduce public debt levels beyond our expectations.

We could also see prospects for an upgrade if the current account deficit narrows faster than we expect and external debt and gross external financing needs are significantly reduced.”

Political stability 

The report further explained that the relatively stable political landscape in the country remains an important factor in attracting external financing and overall levels of investment.

“Ghana’s economy remains dominated by services (about 50 per cent of GDP), with agriculture contributing a substantial 22 per cent and the hydrocarbons sector contributing about nine per cent. The economy is, therefore, vulnerable to weather conditions and oil price fluctuations,” it said. 

The report, however, suggested that with new tax administration and compliance measures not coming into effect until the third quarter of the year, S&P expected the authorities to rely on further expenditure constraints to meet their fiscal deficit target for 2018.

“Through 2021, we expect government budget deficits, absent one-offs, to remain around 5.0 per cent of GDP,” the S&P report said. — GB