• Thu. Aug 4th, 2022

Fitch downgrade due to excessive borrowing – Economic Analysts

Economic analysts attribute the country’s economic troubles and recent fall in Fitch’s ratings to the strains of the government’s many political pledges.

They claim that the country’s constant borrowing to meet costly social and infrastructure development demands has resulted to tremendous indebtedness, with the country still struggling to cover those loans.

Economic analyst Toma Imihere, speaking on Citi TV’s Point of View monitored by Riversfmonline, stated that the administration’s political pledges, and the need to keep them in the face of opposition criticism, have caused the government to borrow at unsustainable levels.

“When a government gets to power, it makes a lot of promises about social interventions and infrastructure, but because of its debt, a lot of its revenue is already going to service debt, so it turns to the Eurobond market to borrow money to keep those promises.” The government understands it is putting itself in a larger mess by borrowing that money, but if it doesn’t do it, the opposition will say it has failed. That was Ghana’s predicament.”

He pointed out that successive governments have borrowed on terms that place the repayment burden on their successors.

Joe Jackson, the Director of Operations of Dalex Finance, stated that the government’s borrowing will be costly, and that the country’s economy will be thrown into turmoil, necessitating immediate action.

“We’ve been borrowing, and the sustainability of our debt is becoming a concern… Things are difficult. Even if politicians refuse to recognize it, witness it for yourself and brace yourself for it will not be easy. The more demands you make, the more difficult things get for all of us.”

Fitch Ratings cut Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from B to ‘B-‘ with a negative outlook last week.

Following a pandemic-related [COVID-19] spike in government debt, the sovereign will lose access to international financial markets in the second half of 2021, according to the downgrade.

“This occurs in the context of uncertainty about the government’s ability to stabilize debt and against a backdrop of tightening global funding conditions,” Fitch wrote in the report. Ghana’s ability to carry out planned fiscal consolidation initiatives, in our opinion, may be hampered by a greater reliance on domestic debt issuance, which carries higher interest rates, in the context of an already extremely high interest expense to revenue ratio.”

Given the country’s macroeconomic predicament, many analysts believe the new grade is unsurprising.

Bright Simons, an honorary Vice President of IMANI Africa, believes that the B- rating is far too generous, and that it puts Ghana at risk of future deterioration, perhaps prolonging the country’s exclusion from international private finance markets.

Prof. John Gatsi, the Dean of the University of Cape Coast’s Business School, has also stated that the country’s rising debt profile makes a downgrade inevitable.

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