Moody's Sees Better Fiscal Conditions in Ghana in 2013-14

Ghana’s budget deficit, which widened to 12.1 percent of gross domestic product last year, will narrow in 2013 and 2014 as the country raises tax revenue and earns more from oil, according to Moody’s.

“We expect the fiscal situation to improve assuming that global commodity prices remain stable and there are no unexpected production disruptions” in oil output, the New York-based ratings agency said in an e-mailed report. It affirmed its B1 bond rating and stable outlook. On Feb. 15, Fitch Ratings cut its outlook on Ghana to negative from stable.

Ghana is trying to narrow its deficit that was almost double the government’s target of 6.7 percent of GDP, according to the central bank. The country increasing spending on civil servants’ salaries, fuel subsidies and expenditures before a December election that was won by President John Dramani Mahama and his ruling National Democratic Congress.

Production at the Jubilee oil field, operated by U.K.-based Tullow Oil Plc, is expected to increase to at least 120,000 barrels a day this year, Finance Minister Seth Terkper said on Feb. 14. Output is currently at about 110,000 barrels, Tullow Chief Executive Officer Aidan Heavey said on Jan. 11. Problems at the site which curbed production last year have been resolved, he said.

Oil earnings contribute less than 1 percent of GDP to fiscal revenue, according to Moody’s. “This will increase substantially once production ramps up to capacity and the tax regime for the petroleum sector is finalized.”

Cocoa, Gold

Ghana is Africa’s second-biggest gold producer after South Africa and the world’s second-largest cocoa producer after Ivory Coast. Gold exports amounted to $5.6 billion in 2012 while cocoa exports were worth $2.8 billion, the central bank said on Feb. 13.

Moody’s expects commercialization of oil and gas discoveries to “fundamentally” transform the $35 billion economy, accelerating growth while global energy prices remain supportive. “Ghana’s creditworthiness is enhanced by a relatively diversified economic structure and robust domestic demand,” it said.

The yield on Ghana’s $750 million of Eurobonds, due October 2017, declined a second day, falling by 3 basis points, or 0.03 percentage point, to 4.71 percent by 12:55 p.m. in Accra, according to data compiled by Bloomberg. The cedi, Africa’s third-worst performer in 2012, weakened 0.1 percent to 1.9025 per dollar.

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