Moody’s cements confidence in economy

Moody’s Investors Service has said the country’s economy has a bright future as positive developments such as a return to primary surpluses, a more secure power supply that supports non-oil growth, and the continuous smoothing of the debt maturity profile keeps improving.

The ratings agency says reforms implemented under the Extended Credit Facility (ECF) programme with the IMF make it more probable that the country’s institutions and policies will foster improved macroeconomic and fiscal stability over the medium term.

Ghana’s credit strengths include the favorable growth outlook for the country’s relatively diversified economy over the next few years, supported by the ramping up of infrastructure investment and the potential development of a new oil field.

Access to more reliable power supply will bolster the government’s industrialisation strategy toward higher value-added products, including in the agro-processing sector – particularly cocoa, in which Ghana and Côte d’Ivoire (Ba3 stable), as the largest producers, are boosting their cooperation.

Moreover, institutions are more robust than similarly rated peers, bolstered by the implementation of public financial management reforms and the restructuring of legacy debts from state-owned enterprises (SOEs). Hydrocarbon exports underpin the shift to a structural trade surplus, although volatile capital flows weigh on the pace of net foreign-exchange reserve accumulation,” Moody’s Annual Credit Analysis report stated.

This comes on the back of the ratings agency, in January 2020, affirming Ghana’s long-term issuer and senior unsecured bond ratings at B3 and changed the outlook to positive from stable. Just two weeks after this, government successfully borrowed US$3 billion from the international debt capital market following a three-day roadshow in New York, Boston, and London.

Economist at the University of Ghana, Dr. Priscilla Twumasi said in an interview with the B&FT that it is a sign of growing confidence in the country’s economy.

“Certainly, it is a sign of investor confidence in the economy, particularly following the Moody’s rating – I think that investor confidence has gone up. We know that it is independent international bodies that do these ratings. And prospective investors look out for an external objective assessment of an economy; and if that assessment comes and it is in a positive direction, people will be willing to invest or take up any investment opportunity in that economy.”

Despite the renewed confidence in the economy, Moody’s is warning that Ghana’s credit profile continues to face pressures and risks due to the country’s persistent revenue challenges, a potential repeat of pre-election fiscal cycles and the emergence of significant arrears and further contingent liabilities in the energy sector are all factors contributing to rising public debt.