Ghana’s Credit Rating Outlook Cut at Fitch on Budget Gap

Ghana’s credit rating outlook was lowered to negative by Fitch Ratings after a “severe deterioration” in the country’s budget deficit, which widened to 12.1 percent of gross domestic product last year.

“Significant risks arise from higher-than-expected arrears, expenditure carryover from 2012 as well as the poor expenditure control seen” in the fourth quarter, London-based Fitch said in a statement today. The rating was kept at B+.

Ghana’s budget shortfall soared to almost double the 6.7 percent target last year as the government boosted spending ahead of a December election, won by President John Dramani Mahama and his ruling party. Finance Minister Seth Terkper said yesterday he plans to narrow the deficit by cutting fuel subsidies.

“The deterioration suggests a serious loss of fiscal control and reduced credibility,” Fitch said. The 2013 deficit may narrow to 8 percent this year and 5 percent in 2014, “reflecting a combination of real expenditure restraint, particularly on current expenditure, as well as continuing robust revenue growth,” according to the ratings company.

The yield on the 8.5 percent Eurobonds due October 2017 declined three basis points to 4.71 percent at 2:22 p.m. in Accra, according to data compiled by Bloomberg.

Rising borrowing costs have pushed the government’s debt to 47 percent of GDP in 2012, up from 31 percent in 2008, Fitch said. That’s above the median of 44 percent for countries rated B, it said.

Fuel Subsidies

The “government acknowledges the fiscal slippage,” Terkper said by phone today. “Fiscal correction should not take long.”

Ghanaian officials intend to narrow the deficit by cutting fuel subsidies and collecting more taxes from oil producers as production rises, Terkper told reporters in Accra yesterday after the central bank released the deficit data.

“We will reduce the subsidies on fuel to free resources for the budget,” he said. “We are currently discussing the level by which we should cut them.”

Unless the government intervenes, the fuel subsidies are set to jump to 2.4 billion cedis ($1.3 billion) this year from about 1 billion cedis, the National Petroleum Authority said on Feb. 11. A liter of premium gasoline sells for 1.708 cedis, according to the NPA’s website. The rate has been held since February 2012, when it was cut by 2.7 percent.

Ghana’s Jubilee oil field production is expected to rise to at least 120,000 barrels a day this year, Terkper said. The higher output will increase companies’ profit and also their tax payments, he said.

Output Rises

Jubilee output is currently at about 110,000 barrels of oil a day, Tullow Chief Executive Officer Aidan Heavey said on Jan. 11. Problems at the site which curbed production last year have been resolved, he said.

While cutting subsidies and increasing revenue will help to cut the deficit, Ghana needs to address the fiscal challenges “with more sweeping reforms” including reducing the size of government to lower the state payroll, Sampson Akligoh, head of research at Accra-based Databank Financial Services Ltd. said in an e-mailed comment today.

Almost all government employees have been moved onto a new salary plan that saw excess payments of 1.9 billion cedis last year, according to the Bank of Ghana.

“The salary arrears will be less” as the remaining 2.7 percent of workers are put on the plan, Terkper said.

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