[ 2016-09-27 ]

Moody’s upgrades Ghana’s economy to B3

Ghana's economy has earned praise from the rating
agency, Moody’s, with a B3 rating, changing the
outlook from negative to stable.


The move is expected to boost investor confidence
in the economy, which has suffered some major
setbacks since the government began implementing
its home-grown and IMF policies to correct some
major imbalances.

Moody's had rated Ghana at B3/Negative since 2015.


The rating agency, in a statement, explained that
three key drivers informed the decision to revise
the outlook.

The first is the "significant deficit reduction
and institutional reform implementation over the
past year under the umbrella of the three-year IMF
programme which started in April 2015".

"Reduced government liquidity risk on the
external side after the successful issuance of a
recent $750 million Eurobond in earmarked to
redeem the remaining $400 million October 2017
Eurobond maturity" was the second driver.

The agency explained that the third reason was the
improved balance of payment dynamics, amid
continued development of oil and gas resources
through higher foreign direct investment inflow,
supporting reserve buffers and reduced currency
volatility.

The Technical Advisor to the Ministry of Finance,
Dr Sam Mensah, told the Daily Graphic in an
interview that “the revision of the outlook at
this time is a testimony to the prudent policies
adopted by the government since 2014 via the
home-grown programme and consolidated in the IMF
programme”.

He said that positive action had come at a time
when there had been an improvement in
macroeconomic and fiscal indicators and followed
the recent successful Eurobond issuance of US$750
million, priced competitively at 9.25 per cent in
September 2016.

“This issuance marked the Eurobond from
sub-Saharan Africa (ex RSA) in 2016 and
demonstrates confidence from the global investor
community in the consolidation of Ghana’s
turnaround story,” he said.

In its report, Moody’s highlighted Ghana’s
ongoing fiscal consolidation and strong fiscal
discipline as credit positives.

Commitment to that level of prudence was recently
codified into law via the Public Financial
Management Law (PFML).

Moody’s also praised Ghana’s prudent debt
management strategy, including the decision to
utilise proceeds from the recent Eurobond to
redeem upcoming external debt maturities, reducing
rollover risks.

The stable outlook reflected Moody’s view that
the reforms adopted by the government would remain
in place and continue to deliver improved economic
performance over the 12 to 18 months.

Together with the successful bond issuance, the
rating action demonstrates the increasing
confidence of international market stakeholders in
Ghana’s turnaround story.

Rationale for stable outlook

The first driver for the assignment of a stable
outlook is the significant reduction in the fiscal
deficit achieved under the umbrella of the
three-year Extended Credit Facility (ECF)
programme since inception in April 2015, with a
deficit reduction to 6.3 per cent of gross
domestic product (GDP) in 2015, from 10.2 per cent
in 2014.

The improvement is underpinned by both improved
revenue collection and expenditure control, in
particular with respect to wages and salaries, and
includes the repayment of arrears in the amount of
2.4 per cent of GDP.

Budget execution data over the first five months
of 2016 pointed to a tax and oil-related revenue
shortfall exacerbated by temporary production
interruptions at the Jubilee oil field, but which
was mostly offset by capital expenditure cuts,
with no salary or goods expenditure overruns.

The second driver of the assignment of a stable
outlook is improved government liquidity risk
profile after the recent issuance of the US$750
million six-year Eurobond at 9.25 per cent
earmarked for the redemption of the remaining
US$400 million outstanding of the 8.5 per cent
October 2017 maturity.

After that, the next international bond principal
payment of US$250 million is scheduled for 2020,
indicating lower near-term external liquidity
pressure. That said, gross borrowing requirements
remain elevated in 2017 at about 18 per cent of
GDP, amid tight domestic and external funding
conditions.

The third driver stems from improved balance of
payment dynamics recorded in the first half of
2016. Moody’s expects the US$750 million
Eurobond proceeds, in addition to the COCOBOD loan
in the amount of US$1.8 billion, to provide an
increased foreign exchange buffer to better
withstand external shocks such as renewed
deterioration in the terms of trade or increased
international capital market volatility following
the anticipated tightening of US monetary policy.


Moody’s expects that Ghana’s fiscal and
external accounts will also benefit from FDI
inflows and the ramp up in oil exports from the
Tweneboa, Enyera and Ntomme (TEN) oil field
starting August 2016 towards 80,000bpd at full
capacity and from the new Sankofa field with
30,000bdp starting production in the second
quarter of 2017 before first gas is expected in
the second quarter of 2018.

Government reacts

Shedding more light on the new economic status, Dr
Mensah said the immediate impact was that it would
bring the country’s yields down on the
international market.

“As of this morning, all of Ghana’s yields
were coming down, which means that should the
government intend borrowing on the international
market, the coupon rate will attract lower
interest than what it did the last time it hit the
international Eurobond market,” he said..

According to him, the new status was something
“we should be happy about. It is not only for
the government but the private sector as well”.

For instance, he said, when the private sector
“is borrowing internationally, the lenders look
at the government cost and use that as a
benchmark. So the general cost of Ghanaian
institutions accessing the markets will go down
with this new rating”.

On whether the other rating agencies would follow
suit, he expressed optimism, saying, “Normally
they tend to move in tandem and so we expect
something like that. Fitch has a negative outlook
on Ghana and so we expect that to change soon.”

Source - graphic.com.gh

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