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Fitch downgrade of Ghana harsh — Terkper

Seth Terkper, Finance MinisterThe Minister of Finance, Mr Seth Terkper, has said the downgrading of Ghana from ‘B+’ to ‘B’ by Fitch, an international rating agency, is very harsh and totally uncalled for.

He said the agency did not take into consideration major economic interventions that the government was undertaking within the short to medium term.


Mr Terkper, currently in Washington for the ongoing World Bank and International Monetary Fund (IMF) meetings, who spoke with the Daily Graphic on telephone, said the economy had registered some modest growth within the short term.


Government confirms Graphic story

In a subsequent statement issued by the ministry, the government confirmed a Daily Graphic report that Ghana’s sovereign rating had been downgraded by Fitch from B+ with negative outlook to ‘B’ with stable outlook.

The rating had been on a negative outlook since February, 2013, when Fitch took the decision to review Ghana’s credit quality in the light of issues that arose in 2012, which were analysed in the government’s 2013 budget.

But when the Daily Graphic carried the latest rating in its October 17, 2013 edition, the flagship of the Multimedia Group Limited, Joy FM, discredited the story in its business report, claiming to have contacted unnamed sources at the rating agency’s headquarters in  London, United Kingdom, and New York, USA, denying any such rating.

However, hours after the Joy FM report, the Ministry of Finance issued a statement confirming the Daily Graphic report.


Mr Terkper Responds

Throwing more light on the rating, Mr Terkper said the country was implementing various restructuring programmes which included the periodic adjustment of petroleum and utility prices to bring sanity into the economy, while at the same time shoring up government revenue.

He said the economy was on track and the government was fully committed to implementing various fiscal policies, adding that it was implementing a three-year adjustment programme, since a single-year adjustment did not produce full results in a single year.

Mr Terkper said  the  medium-term economic outlook remained very solid and that the government was  targeting a five to six per cent budget deficit in the near term, while maintaining seven to eight per cent growth.

He said while the advanced economies were growing at two to three per cent, the country was growing at seven per cent, according to the Ghana Statistical Service.


Challenges in the wage bill

The minister acknowledged the challenges in the wage bill and said efforts were being made to address them, since that issue could not be addressed overnight.

He stated that the gradual increase in Ghana’s oil and gas production, value addition and the diversification plan to boost agriculture, in particular, as well as a vibrant and growing services sector , were  still driving the projected annual economic growth rate of seven to eight per cent over the medium term.

He said it was in that respect that the government launched its three-year fiscal consolidation plan to boost a very strong economic environment and outlook and said despite the challenges it faced, Ghana’s growth was expected to remain above a healthy seven per cent at the end of 2013.

He said the report completely ignored the various growth factors and that Fitch focused narrowly on the short term and high level compensation challenges facing the economy.

“The current difficulties are an aberration and we are already showing signs of returning to the medium-term targets we have set out,” the minister stated.

He said despite  the lower rating, the country was  viewed as being among the fast growing economies within the sub-region and that the IMF, in such situations, allowed for a three-year adjustment programme.

He said he still held the very  strong view that Fitch’s downgrade did not sufficiently reflect the country’s structural measures and deep reform efforts, notably in public financial management.


Ministry of Finance statement

In its statement, the government indicated that it was implementing several measures to resolve the plaguing economic issues the country faced.

It said the Fitch rating, however, maintained that the challenges remained significant enough to justify a lower sovereign rating.


Brightest economic spot

Ghana is considered one of Africa's brightest economic prospects, with a stable democracy and an economy expected to keep growing at about eight per cent in 2013.

This year has seen progress in fiscal consolidation after last year’s deficit as part of the necessary steps to address long-standing issues that have plagued Ghana.

The government has worked tirelessly to address the many challenges the country faces, all against a weak global economic environment which has resulted in significantly lower gold and cocoa prices and a year-long power shortage due to the disruption of gas supply from the West African Gas Pipeline.


Wage bill and subsidy removal

According to the statement,  the wage bill was a major reason behind last year’s deficit and continued to limit its fiscal flexibility.

“Implementation of the Single Spine Salary system has been necessary but difficult. While it has entailed higher-than-expected fiscal outlays, it is nearly complete and will form the basis for a more controlled wage bill in the future.  The improvement in payroll systems and processes is part of the comprehensive public financial management (PFM) reforms being implemented,” it said.

It said for 2013, annual wage increases were moderated to 10 per cent, compared to previous high levels, and explained that the near-term goal was to comply with the Economic Community of West African States (ECOWAS) convergence criteria on wage-to-tax and wage-to-GDP ratios.

“When our wage bill is controlled, we will have more fiscal space to implement pro-growth infrastructure projects,” it said.

It said the government had already taken the tough steps of minimising the adverse impact of subsidies on petroleum products and utility tariffs on the budget.

Though the measures were causing some discomfort, it said those measures would reduce the strain on the government’s already stressed budget and also allow for more investment into the sector in the medium term.

It said the government intended to implement a more gradual realignment of petroleum and utility prices to minimise the distortions that were created by the previously large and infrequent adjustments.

“It is expected that capital expenditures will remain within the budget figures — and follow the moratorium on new projects and loans that are not exceptional or reflect known national priority,” it added.


Ghana’s medium-term outlook

On the latest ratings, it said Fitch’s downgrade did not sufficiently reflect Ghana’s structural measures and deep reform efforts, notably in public financial management, which were being implemented to support fiscal consolidation.

“Ghana is not on a single-year adjustment plan, since experience shows that such structural measures do not produce full results in a single year,” it said.

The statement said the country’s medium-term economic outlook remained strong and that it was targeting a five to six per cent budget deficit in the near term, while maintaining a seven to eight per cent growth.

“These strengths, along with its diversified commodity engine, strong services sector and, above all, the hardworking Ghanaian people, make the government confident that it has all the pieces in place for sustained economic growth to deliver prosperity for the country and return to the higher credit rating it deserves,” it said.

Moody's Investors Service rates Ghana B1 with a stable outlook. Standard & Poor's rates Ghana B, also with a stable outlook.

Ghana's cedi, which has weakened almost 14 per cent this year, held steady on Thursday at 2.1750 to the dollar, according to a Standard Bank trader.

By Llyod Evans/Daily Graphic/Ghana

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