Forbes, S&P Got it Wrong, But they are Right

Wed, 1 Sep 2010 Source: Casely-Hayford, Sydney

By Sydney Casely-Hayford, www.bizghana.com

Reading the recent report from Standard and Poor’s there is this gut

instinct of outrage, how dare them. Yet a contradictory sinking

feeling of belonging to a developing world where neither local nor

international public statements impact the political economy as

promptly as one would like.

Would that there is a wizard’s wand, which could wave away the

potholes and choked sewers, the traffic jams, the street hawkers,

illegal structures at Agbogbloshie and other places, the stench of

the Korle lagoon and all of those visual poverty indicators that we

can fix without foreign direct investment. Unfortunately, we have no

such political magic.

A leading international rating agency, Standard and Poor’s, last week

reduced Ghana’s sovereign rating from B+ to B. In a previous report,

Forbes, one of the most authoritative financial magazines had

commented on Ghana’s “mismanaged” economy. Initially, the Ghana

Government had raised a hue and cry, but Tuesday, Government has

decided that they do not intend to borrow on the international bond

market soon anyway. So be it. Whether it be sour grapes or good

business sense is difficult to determine. I would advise that you do

not go to the market without the best of ratings anyway.

All this notwithstanding both Forbes and S&P got the numbers wrong.

Much has been said and written already about Forbes’ basis but we

need to look at the S&P reasons for downgrading our status. The

numbers from both are questionable, but we do not need an outsider to

come and tell us that all is not well with us.

Bear in mind that ratings is not a scientific determination but a

derivative of some financial data and a large measure of

interpretation of the abilities of the “managers” of an entity, in

this case the Government of Ghana, we have to be as objective as we

can about our own economic performance. International rating

agencies such as S&P and Fitch are first to admit that their

conclusions are subjective opinions of their analysts. However,

their expertise is honed in their abilities over the years,

acceptance of their accuracy and they are seen to be independent of

influence by both regulatory and private business. They are accepted

as credible and a necessary part of the capitalist model. But they

do get it wrong sometimes!

So, my sentiments in the opening paragraph aside, what did S&P give

as reasons for the B rating?

Their analyst, Ravi Bhatia, mentions the “cumulative effect of a

large and erratic fiscal deficit”. There is no one in Ghana who does

not know this. Most of us will not have the numbers at our

fingertips, but this Government itself has said on every platform

that it can find, that they inherited a huge deficit from the NPP

administration. Every radio-listening Ghanaian has heard of the

deficits, both in English and the local languages. This figure is

targeted at 8% of GDP and not 1.2% as stated by S&P.

His next point talks about “substantial supplier arrears”. Please

stand up and be counted if you are not aware that Government is not

paying its contractors and suppliers. As it is now, Government’s

fiscal prudence is to drag arrears to contractors into 2013. This

plan is supported by the IFC in its Extended Credit Review, which

took place in May this year. All contractors are cash strapped and

new contracts are not being serviced, not to count the backlog that

is growing by the month.

That takes us to the next, “high debt levels”. Is this Government

not borrowing from anywhere it can find cheap money? We just sat on

tenterhooks for 2 weeks of parliamentary debate on a $10billion loan

from Korea. Was this not an issue and a lot of brouhaha by the

legislature? And there are many loans we do not hear about. This

one was high profile and controversial enough. That borrowing alone

is close to 60% of our current GDP.

Ravi next mentions “loss-making state-owned enterprises”. Ok, you

have to be old enough to remember that this goes back even to Nkrumah

and the CPP government. Dare I say that has anyone seen the

financial statements of the SOE’s? The most classic and one that we

have all heard about is Tema Oil Refinery (TOR). Only this year,

Government stepped in to pay Ghc445million to Ghana Commercial Bank

as part of the debt owed to them by TOR. That debt alone was the

equivalent of 1.7% of GDP. Including other public utilities, the

debt level owed to banks is 6% of GDP. We have a lot of these SOE’s

and we know about their performance record.

Finally, the S&P analyst brings up the issue of “problems in the

banking sector”. Now this is not at all contentious. Non-performing

loans have ballooned from 7% in 2007 to 20% in 2010. The majority of

the defaulters are contractors and real estate developers. The key

player in all this is Government. The supplier arrears are causing

most of these companies to default, banks are becoming risk averse

and lending is constrained. We are borrowing at an average of 24%,

the highest in the sub-region and manufacturing is collapsing from

high electric and water tariffs as well as a lack of incentives from


I live here in Ghana, as do most of us. Is this not a true

reflection of what we are going through at this time? Every time the

politicians create tension when it comes to voting, we lose

credibility in the finance world. Every time we remove heads of

institutions because of political affiliation we suffer same. When

we “review” contracts because a previous government awarded a

contract and politicians either want the contract for their own

person or just to be vindictive, we drop our uprightness in the eyes

of the world. Once we attack public opinion using innocuous laws to

intimidate liberal views, and party rabble-rousers (foot soldiers)

threaten to bypass the laws that guide us all as a civil body we are

bound to feel the effect of international opinion.

We are saying all this ourselves, yet we object to it being used in

analyzing our own situation and we object to the grade we are given

based on what we all know to be true?

I am disappointed, as will most Ghanaians that we have been marked

down, when we have achieved so much recently. But just because we

nearly made history at the World cup does not mean we get a soft

landing all the time. This is a wake up call for our Government.

Taking a sour grapes approach is not the answer. Fundamentally, we

must feed ourselves as a nation. We must clean up after ourselves.

We must fill our potholes and make the roads motor able. We must

create more and import less and we must stop the political fights and


This is why the Forbes and the S&P’s can look at where we are and say

it is not good enough, and honestly, it is not good enough! We have

found a commodity that makes money shoot up faster than a winged bean

and this world is looking at us very closely. Our actions now count

for a lot.

Sydney Casely-Hayford

Columnist: Casely-Hayford, Sydney