Fiscal risks take the shine off Ghana’s prospects

By:
Jeremy Weltman
Published on:

The country has disappointed investors by revealing undisclosed liabilities, which is underlining how African borrowers must be treated with caution.

Nana Akufo-Addo-R-600
Ghana's new president Nana Akufo-Addo at a recent military parade


It wasn’t going to be an easy ride for Nana Akufo-Addo, who stormed to victory in the Ghanaian presidential elections in December to oust the incumbent John Dramani Mahama.

Barely two months into a four-year term, and with a population anxious for change, Akufo-Addo’s government has unearthed a huge hole in the government’s finances, purporting to be undisclosed arrears for the past three years totalling $1.6 billion, subject to an official audit.

The outgoing administration was already over-budget for 2016, exacerbated by pre-election spending overruns, with the deficit coming in at 7% of GDP from January to November, well above the 4.7% target.

That compares with a predicted narrowing of the deficit to 5% of GDP in 2016, and 3.9% in 2017, in the African Economic Outlook released in August, a joint project by leading multilateral agencies providing forecasts that can often be taken with a grain of salt.

Now even the new finance minister Ken Ofori-Atta admits the deficit has probably increased to 10% of GDP in 2016, complicating the process of fiscal consolidation enshrined in Ghana’s IMF programme.

Therefore, even before the 2017 budget proposals are unveiled next month, the improving debt profile has reversed, probably topping 77% of GDP by the end of 2016, and rising further this year, before coming down again by 2018, depending on how quickly GDP growth picks up speed.

Risk implications

With the elections completed, and economic growth expected to rise from barely 4% in 2016 to more than 7% this year, Ghana’s risk score steadied towards the end of last year:

ECR_Ghana-540


It was enough to push the borrower two places higher in ECR’s global risk rankings, to 98th out of 186 countries surveyed, despite the concerns surrounding bank stability and diminished capital access.

The government states it is committed to fiscal consolidation and the IMF programme, and will be provided with some leeway by the markets since it has only just taken office and is not to blame.

However, as one ECR expert, who asked to remain anonymous, states: "The debt burden and servicing costs are now a bigger concern.

"Ghana’s Eurobond yield has increased to just shy of 8.5%, and increased currency depreciation is now factored in, and the country might be forced into seeking out alternative financing, perhaps from China."

Euromoney’s survey experts are reviewing their risk scores, with some indicating they might downgrade certain risk factors to account for the increased risks surrounding government finances and currency instability.

Ghana was already saddled in the fourth of ECR’s five tiered categories, on a score of just 36.4 from a maximum 100 points.

Its investor prospects are unlikely to improve for the time being.

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.