{"id":51735,"date":"2014-09-28T11:03:37","date_gmt":"2014-09-28T11:03:37","guid":{"rendered":"http:\/\/4cd.e16.myftpupload.com\/?p=51735"},"modified":"2014-09-28T12:54:49","modified_gmt":"2014-09-28T12:54:49","slug":"eurobond-cocoa-loan-influence-ghanas-fitch-rating","status":"publish","type":"post","link":"https:\/\/citifmonline.com\/2014\/09\/eurobond-cocoa-loan-influence-ghanas-fitch-rating\/","title":{"rendered":"Eurobond, Cocoa loan influence Ghana\u2019s Fitch rating"},"content":{"rendered":"

The International Monetary Fund (IMF) talks with Ghana on a bailout programme, the recent Eurobond issue and the cocoa syndicated loan has caused international rating agency Fitch, to affirm Ghana\u2019s rating at \u2018B\u2019.<\/p>\n

In March 2014, Fitch downgraded from \u2018B+\u2019 to \u2018B\u2019<\/span><\/a><\/strong><\/span>, Ghana\u2019s outlook on long-term foreign and local currency Issuer Default Ratings (IDR) .<\/p>\n

[contextly_sidebar id=”GdxhZz3mNeyjno0tRVHspCFLuEX2KiYb”]In addition, Fitch cast doubts over the country\u2019s ability to service its debts in the future in time, saying that Ghana’s fiscal position had worsened further.<\/p>\n

Shortfalls in revenue collection and a huge budget deficit also informed Fitch\u2019s decision at the time.<\/p>\n

The situation has not changed much but Fitch said the moves have alleviated some short-term pressures on foreign reserves and the Cedi, hence its decision.<\/p>\n

The agency took notice of the talks between Ghana and the IMF over a possible programme<\/span><\/a><\/span><\/strong>.<\/p>\n

Fitch however does not trust Ghana can easily abide by the final programme, given its history.<\/p>\n

It said, \u201cgovernment will probably seek IMF’s endorsement for the country’s ‘home-grown’ strategy, but given its recent track record, may find the IMF’s likely suggestion of faster fiscal consolidation challenging. Notwithstanding these risks, Fitch expects a programme will likely be agreed.\u201d<\/p>\n

Below is the Full Press Statement:<\/strong><\/p>\n

Fitch Ratings-London-26 September 2014:<\/strong><\/p>\n

Fitch Ratings has affirmed Ghana’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B’ with Negative Outlooks. Fitch has also affirmed Ghana’s Short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘B’. The issue ratings on Ghana’s senior unsecured foreign and local currency bonds have been affirmed at ‘B’.<\/p>\n

KEY RATING DRIVERS<\/strong><\/p>\n

<\/strong>The affirmation reflects the following factors:<\/p>\n

A recent Eurobond (USD1bn) and the annual Ghana Coco Board syndicated loan (USD1.7bn) have alleviated some short-term pressures on reserves and the currency. However, a lasting reduction in funding pressures, for both the fiscal and current account deficits, is unlikely until an IMF programme is agreed and a credible deficit reduction strategy is implemented.<\/p>\n

The government began talks with the IMF in mid-September over a fund programme. However, Fitch expects negotiations to be protracted with a deal expected only next year. The government will probably seek IMF’s endorsement for the country’s ‘home-grown’ strategy, but given its recent track record, may find the IMF’s likely suggestion of faster fiscal consolidation challenging. Notwithstanding these risks, Fitch expects a programme will likely be agreed.<\/p>\n

The supplementary budget announced in July forecasts the budget deficit in 2014 to widen to 8.8% of GDP from 8.5%. Curtailing current expenditure and arrears, while boosting revenue remains challenging for the government, as a result Fitch forecasts a deficit of 10.1% of GDP for 2014. The magnitude of fiscal consolidation in the coming years will depend on the path of deficit reduction agreed with the IMF. Two years of double-digit deficits, combined with a cumulative 45% depreciation of the currency since January 2013, has seen debt jump to 61.7% of GDP in 2013, based on Fitch’s calculations, from 39% in 2011 – well above the ‘B’ median of 43.7%.<\/p>\n

The Bank of Ghana’s (BOG) role in funding Ghana’s budget deficit in the first half of the year illustrates the financing challenges the government faces. Yields of 182-day Ghanaian Treasury bills jumped above 25% in September, from 19% in January 2014. The authorities highlighted a liquidity shortage in the Ghanaian cedi as institutions cut their holdings of government securities, contributing towards the central bank monetising USD1bn (or 90%) of the budget deficit during 1H14. Fitch believes that increased risk aversion could be another reason for the yield increase in T-bills.<\/p>\n

Challenges in the FX market have intensified since January 2014, with the Ghanaian cedi falling 34% between January and September. International reserves fell to 2.2 months of current external payments (CXP) in August from 2.7 months at end-2013.<\/p>\n

Excluding swap facilities used to bolster reserves, CXP cover is only 1.5 months. The gap between the interbank rate and the Central Bank Transaction rate, the rate at which BOG supplies USD to the market, widened GHC40 cents since May. Parallel exchange markets are creating distortions in the domestic economy and exacerbating the shortage of dollars. Fitch expects reserves to face pressure early next year due to seasonal demands for foreign exchange if an IMF deal is not reached.<\/p>\n

Fitch forecasts the current account deficit will narrow to 10.1% of GDP in 2014 from 12% in 2013, due to falling imports as the sharp depreciation of the Ghanaian cedi supresses import demand. The onset of domestic gas production from the Jubilee oil field, which will offset more expensive crude oil imports used in power plants, could improve the outlook for the current account deficit more than forecast.<\/p>\n

Ghana’s weak fiscal and external positions are the key rating weaknesses and are adversely impacting macro-economic stability. Fitch expects GDP growth to moderate to 6.1% in 2014 from 7.1% in 2013, although significant downside risks remain if Ghana’s fiscal and external challenges intensify. Ghana’s weaker growth outlook over the next two years will complicate fiscal consolidation.<\/p>\n

The ratings are supported by Ghana’s strong governance record and democratic history, highlighted by the peaceful transfer of power in 2012 and respect for judicial due process.
\nGhana’s business environment compares favourably even with ‘BB’ median countries. This is reflected in Ghana’s ability to attract foreign direct investment, which at 7% of GDP is well above Nigeria, Gabon, Zambia, Kenya and Angola.<\/p>\n

RATING SENSITIVITIES<\/strong>
\nNegative: the main factors that individually, or collectively, could trigger negative rating action include:
\n-A further deterioration in external finances and an erosion of Ghana’s international reserve position, jeopardising the country’s external financing capacity
\n-Increased domestic financing constraints, further deterioration in fiscal accounts and government debt dynamics
\n– Worsening economic performance and reduced economic stability
\nThe Outlook is Negative. Consequently, Fitch’s sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade. However, future developments that may, individually or collectively, lead to a revision of the Outlook to Stable include:
\n-An effective fiscal consolidation that places debt-to-GDP firmly on a downward trajectory
\n– An improvement in Ghana’s external position reflected in a narrowing of the country’s current account deficit and an improvement in international reserves.<\/p>\n

KEY ASSUMPTIONS<\/strong>
\nFitch assumes Ghana’s GDP growth will remain above 5% in 2014-2015 and in the medium term. This in turn will depend on oil production coming on stream as expected; the continued development of the gold sector; and further investment in infrastructure.
\nFitch assumes an IMF programme is agreed and fiscal consolidation continues.
\nFitch assumes no sustained deep fall in commodity prices that would undermine an already weak external position<\/p>\n

 <\/p>\n

–<\/p>\n

By: citifmoline.com\/Ghana<\/p>\n","protected":false},"excerpt":{"rendered":"

The International Monetary Fund (IMF) talks with Ghana on a bailout programme, the recent Eurobond issue and the cocoa syndicated loan has caused international rating agency Fitch, to affirm Ghana\u2019s rating at \u2018B\u2019. In March 2014, Fitch downgraded from \u2018B+\u2019 to \u2018B\u2019, Ghana\u2019s outlook on long-term foreign and local currency Issuer Default Ratings (IDR) . […]<\/p>\n","protected":false},"author":24,"featured_media":24812,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[43,38,4],"yoast_head":"\nEurobond, Cocoa loan influence Ghana\u2019s Fitch rating - Citi 97.3 FM - Relevant Radio. 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