International credit rating agency, Moody’s is warning that Ghana will find it expensive to borrow to run its economy due to a decline in revenue and an increase in interest costs.
In its latest assessment of the Ghanaian economy, Moody’s also ranked the country B3 with a negative outlook, explaining that Ghana has high exposure to external financing.
“The negative outlook reflects the rising risks that the pandemic poses to Ghana’s funding and debt servicing due to its exposure to shocks from a high dependence on external financing,” said Kelvin Dalrymple, Vice President – Senior Credit Officer, at Moody’s.
According to Moody’s, the challenge now for Ghana is to implement an austere budget by limiting spending or find cheaper loans to finance the deficit left by its reduction in earnings.
“That said, our outlook could turn stable if the government limits the potential increase in its funding needs or confidently show it will be able to get sufficient funding at moderate costs, when needed,” Mr Dalrymple explained.
Ghana’s economy, valued at almost US$70 billion, experienced two-quarters of the decline in its Gross Domestic Product in the second quarter and third quarter of 2020 respectively.
Despite that, the economy is expected to grow at a modest 1.0% in 2020.
Moody’s said the COVID-19-induced contractions are considered a departure from the country’s leap of 6.5% in 2019.
Again, it pointed out that the Ghanaian economy, was more diversified than Nigeria’s oil-dependent one and could rebound faster if it reduced its exposure to foreign borrowing.
“Debt affordability remains Ghana’s main credit constraint and continued to deteriorate in 2020, driven by both the declining revenue share and a higher interest bill, reflecting greater recourse to borrowing to fund spending,” Moody’s noted.
It emphasized that with funding from gold, petroleum, and a thriving service industry, Ghana tried to keep its debt to GDP ratio at a single-digit 7%. The World Bank estimated that the pandemic increased this ratio to a double-digit figure of over 11%in 2020.