{"id":155181,"date":"2015-09-28T05:30:50","date_gmt":"2015-09-28T05:30:50","guid":{"rendered":"http:\/\/4cd.e16.myftpupload.com\/?p=155181"},"modified":"2015-09-28T04:18:53","modified_gmt":"2015-09-28T04:18:53","slug":"sovereign-credit-rating-implications-for-ghanas-4th-eurobond","status":"publish","type":"post","link":"https:\/\/citifmonline.com\/2015\/09\/sovereign-credit-rating-implications-for-ghanas-4th-eurobond\/","title":{"rendered":"Sovereign credit rating: Implications for Ghana\u2019s 4th Eurobond"},"content":{"rendered":"
<\/p>\n
Overview<\/strong><\/p>\n
Fitch Rating, the international rating agency headquartered in New York has assigned a speculative-grade credit risk status to Ghana\u2019s local and foreign currency debt instruments. The \u201cB\u201d Issuer Default Rating (IDR) with negative outlook, sends strong signals to the investor community about Ghana\u2019s high credit risk associated with sovereign debt issuance, who may demand higher yield before parting ways with investment capital. This opinion piece analyzes the implications for Ghana\u2019s imminent sovereign debt issue and makes policy recommendations to address downside risks.<\/p>\n
The Rating – Basis of Opinion<\/strong><\/p>\n\n
Fitch uses an ordinal ranking system to grade sovereign and\/or corporate liabilities into two categories; investment grade (signifying low-to-medium risk) and speculative-grade (signifying high risk) issues. Fitch bases its rating opinion on the interplay and impact of the following variables on an issuer\u2019s capacity to meet liability commitments as per the terms and conditions of the issue contained in the prospectus. In terms of Ghana\u2019s rating, the following variables (para. 2-8) formed the basis of Fitch\u2019s \u201cB\u201d rating:<\/li>\n<\/ol>\n\n
Ghana\u2019s fiscal performance under the 3-year IMF-sponsored economic recovery has yielded positive outcomes for H1 2015. Fiscal deficit for period under review (H1 2015) is 3% of GDP compared to program target of 4%.<\/li>\n
Real sector growth year-on-year saw GDP grow by 4.7% in Q1 2015 compared to a negative growth of 3.8% in Q1 2014. This was driven broadly by strong growth in Agriculture (7.4%) and Services 4.7%. This notwithstanding, the economy is expected to grow at 3.1% in 2015, reaching 6% in 2017, according Fitch.<\/li>\n
Inflation and inflation expectations remain elevated as headline CPI reached a peak of 17.9% in August 2015 from 16.4% in January. This was driven mainly by the non-food category due to utility price hikes and pass-through effects of cedi depreciation against major trading currency.<\/li>\n
On the monetary front, Narrow Money (M1: currency in circulation and demand deposits) experienced a slowed growth from 24.9% in January 2015 to 13.5% in July 2015. This may be exerting further inflationary pressure due to the increased demand for transaction balance.<\/li>\n
On the external from, trade deficit worsened from $3m in H1 2014 to $1.5b in H1 2015. This was driven by lower export receipts of $6.3b in H12015 compared to $8.1b in same period 2014 while import expense was $7.8b down from $8.4b in H1 2014. Fortunately, flows through the country\u2019s Service and Income Accounts compensated for the poor Merchandize Trade Account performance to improve overall Current Account position.<\/li>\n
Gross Foreign Asset (GFA) declined from $5.5b (3.8 months of import cover) in Dec. 2014 to $4.4 (2.8 months of import cover).<\/li>\n<\/ol>\n