Ghana, the West African nation that had its credit rating cut in October, is in talks with Brazil, Abu Dhabi and South Africa for financing, President John Dramani Mahama said.
“The appetite for investment in Ghana is strong,” Mahama said in an interview at the World Economic Forum in Davos, Switzerland yesterday. “We have short-term challenges and we don’t hide it, we are transparent and open about it. We are doing things to fix it.”
Fitch Ratings cut Ghana’s credit on Oct. 17 due to concerns that the government will overrun spending and won’t reach a fiscal-deficit target of 8.5 percent this year. Fitch cut Ghana’s rating one level to B, five steps below investment grade, while Standard & Poor’s and Moody’s Investors Service last month lowered the outlook on Ghana’s ratings to negative from stable.
“They have too short-term a view,” Mahama said of the ratings cut. “There is strong confidence in Ghana’s economy.”
The president reiterated plans to sell bonds in overseas markets, saying the government will issue this year at least $1 billion of securities and that the amount could swell to $1.5 billion “if the market looks very good.” It’d be the country’s third international offering.
Ghana sold $1 billion of 10-year dollar-denominated bonds in July, joining a surge in African nations’ overseas issuance, to help finance its budget deficit. The bonds yielded 8.61 percent yesterday, up from 8 percent at their sale last year. The country hasn’t yet chosen banks to help arrange a new deal, Mahama said.
Deputy Finance Minister George Ricketts-Hagan said earlier this month that the government wanted to tap the international market in April.
A slump in gold prices, shrinking investor confidence, and less-than-anticipated oil output meant that Ghana was unable to meet its growth target. Gross domestic product probably expanded 7.4 percent last year, less than the projected 7.9 percent, Finance Minister Seth Terkper said Nov. 19.
Mahama, 55, assumed office in July 2012 following the sudden death of John Atta Mills, who fell ill toward the end of his first term. The former vice president won elections five months later with a 3 percentage point victory over the main opposition party. A dispute over the results, which ended when the Supreme court upheld Mahama’s win, slowed the pace of investment in West Africa’s second-biggest economy last year.
Gold-mining companies in Ghana plan to scrap as much as 4,000 jobs to reduce spending after the gold price dropped 28 percent last year, according to the Chamber of Mines. AngloGold Ashanti Ltd. Chairman Tito Mboweni told Bloomberg TV this week that inflexible labor laws and outdated work practices are “enormous challenges” for the company’s gold mine in Ghana.
The challenges facing gold companies cannot be tied to labor laws, Mahama said. The companies will need to reach a consensus with workers to continue operations, he said. Gold dropped 28 percent last year, its first annual drop since 2000.
“I must say that Ghana has a strong tradition of trade unions,” Mahama said. “The workers are quite enlightened about their rights, they negotiate strongly.”
The government is struggling to narrow a budget deficit that grew to 12.1 percent of gross domestic product in 2012 due to election spending and an increase of state workers’ salaries. Wages now account for 72 percent of tax revenue. The government raised taxes, cut fuel subsidies and increased the price of electricity and water to narrow the gap. Ghana is targeting a fiscal gap of 8.5 percent this year, while the International Monetary Fund sees a budget deficit of 9.1 percent.
“We are taking all the measures to try and rein it in,” Mahama said of the fiscal deficit. “One is by reducing expenditures and two, by raising revenues.”
The central bank has raised borrowing costs 3.5 percentage points since 2012 to 16 percent in a bid to tame inflation that quickened the most in almost four years because of a weak currency and an unprecedented jump in fuel and electricity prices after the government cut subsidies. The inflation rate rose to 13.5 percent in December from 13.2 in November.
The cedi dropped 0.9 percent to 2.43 per dollar by 10:46 a.m. in Accra after strengthening 0.5 percent yesterday. The currency dropped 20 percent against the dollar last year, the worst among 22 African currencies tracked by Bloomberg after the Malawian kwacha and Sudan’s pound. The currency has depreciated every year since at least 1995, according to data compiled by Bloomberg, which began compiling the data in May 1994.
“We are trying to get the macro right because its key to our vision of creating an environment for foreign direct investment and for the private sector to bloom,” he said.