A chartered Economist, Mr Martin Ohene Anim, says the recent Bloomberg report, placing Ghana’s cedi as the second worst performing currency in the world after Sri Lanka’s rupee, a country which is currently facing bankruptcy and political turmoil, speaks volume about the bad state of the Ghanaian economy.
According to him, the cedi’s rapid depreciation and the recent credit ratings by S&P Global Ratings and Fitch put Ghana’s economic fortunes and outlook in much distress.
Speaking on Active TV’s Morning Show on Ghana’s economic woes and the recent credit ratings, he explained, “the rating is a reflection of what we are [as a nation], a reflection of the state of affairs that our debt levels are high and we don’t have the capacity, externally and domestically, to mobilise resources to pay our debt obligations.”
He pointed out the credit rating organisations consider the debt portfolio countries hold, whether or not they are sustainable and if they have the liquidity to pay their debt obligations when they fall due in the short term. He further explained a country’s debt to GDP ratio; that is, their primary balance at every point in time determines the sustainability of their debts. The debt to GDP ratio of a country is very crucial as it shows the total productivity of that economy and how much of it is used in settling debts.
Mr Anim revealed Ghana’s debt is at Ghc393 billion, representing 78.3% debt to GDP ratio. As it stands, Ghana currently uses much of its revenue in paying interests and amortisation, an indication that our debt levels are not sustainable.
There are other factors the ranking agencies use in their credit ratings of nations, according to the economist.
He expounded they also consider the liquidity of a country. Liquidity, according to him, is whether or not a country has the available resources to pay its debt obligations when they fall due. That is, their short term solvency.
He said, traditionally, Ghana goes to the Eurobond Market annually to borrow $3 billion, to be able to shore up reserves, meet import demands and pay our debt obligations. “The rating agencies have noticed you have been blacklisted from the Eurobond Market so you cannot go into the market to raise the revenue to refinance your debt obligations that will be maturing in the short term,” he decries of Ghana’s outlook.
The rating agencies as well examine the domestic revenue mobilisation measures a country has put in place. The government of Ghana was hoping to use the controversial e-levy as a major revenue measure to pay debt obligations and settle statutory payments. But according to the Finance Minister, only 10% of the projected revenue was raked. Inflation is also on an all-time high of 31.7%. Thus, the rating agencies have realised Ghana’s domestic revenue mobilization measures have also fallen short.
He bemoaned, Ghana’s debt levels and debt to GDP ratio are high; we cannot generate revenue domestically, and we cannot raise finances externally. In effect, the nation is at risk of being unable to fulfil its debt obligation in the short term.
“That is why we are rated from B- to CCC+ with a negative outlook. Negative outlook because our fiscal and monetary policies, and the macroeconomic environment are not one that engender productivity that will ensure that the government mobilises resources to settle its debt obligations. This is why we have been downgraded,” the Chartered Economist, who doubles as a Chartered Accountant said of Ghana’s recent credit rating.