Ghana Credit Rating Cut by Fitch Amid Budget Gap Concern

Fitch Ratings cut Ghana’s credit rating by one level as the government said it won’t be able to meet its target to narrow the budget gap.

The sovereign rating was lowered to B from B+, with a stable outlook, Fitch said in an e-mailed statement today. The government is unlikely to meet its deficit target of 9 percent of gross domestic product, Deputy Finance Minister George Ricketts-Hagan said by phone today. The B is five levels below investment grade. Standard & Poor’s has an equivalent rating, while Moody’s Investors Service has it rated a level higher. Both companies have a stable outlook for Ghana.

Ghana is struggling to narrow a fiscal gap that rose to 12.1 percent of gross domestic product last year because of spending before elections in December. The government on Oct. 1 raised water and electricity rates after gradually removing fuel subsidies earlier in the year. It also introduced four new taxes, including a 5 percent stabilization levy on earnings of specific companies. Falling gold prices are further curbing earnings for Africa’s second-largest gold producer.

“Ghana’s creditworthiness has been further weakened by the government’s failure to fully implement its fiscal consolidation plan in 2013,” Carmen Altenkirch, a London-based Fitch analyst, said in the note. “The authorities continued to overrun on wages, interest costs and arrears.”

Narrow Analysis

Fitch’s analysis is “extremely narrow,” Finance Minister Seth Terkper said by phone after the decision.

“The rating is not fair, it does not reflect our efforts at fiscal consolidation and short and medium adjustments to curb the deficit,” he said. “No country completes adjustment within one year.”

Last month, Terkper said Ghana was on track to reduce the deficit to 9 percent this year through austerity measures.

The government may fall short of its budget deficit goal this year because of the falling price of gold, Societe Generale SA said in August. Economic growth will slow to 7 percent this year from 8 percent in 2012, according to the International Monetary Fund.

New Target

Ghana will probably target a budget gap of 9.5 when Terkper presents his new budget later this year, David Cowan, Citigroup Inc. Africa economist, said in an interview in Johannesburg.

“If you look at the fiscal deficit and the current account deficit, they are significantly worse compared to their comparatives like Kenya or even Zambia,” he said. “It will be a big test for them, because they have to get it down.”

Spending on wages climbed to 72 percent of tax revenue last year, fueled by an 18 percent wage increase for civil servants. The state plans to lower the wage bill to between 30 percent and 35 percent of tax income by 2015.

The Bank of Ghana left the benchmark interest rate unchanged for a second consecutive meeting on Sept. 18 to counter sluggish growth and a weaker cedi. Inflation quickened in September to 11.9 percent, the fastest pace this year, while the currency remained at a record low, boosting the cost of imports.

The cedi fell 0.6 percent to 2.19 per dollar as of 3:39 p.m. in Accra. The yield on the 2023 dollar bond dropped 3 basis points to 7.87 percent.

To contact the reporters on this story: Pauline Bax in Rotterdam at pbax@bloomberg.net; Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net; Ekow Dontoh in Accra at edontoh@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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