(The following statement was released by the rating agency)
Feb 18 - Fitch Ratings says in a newly published report that the increase in Ghana’s deficit compared with the original budget and especially the blow-out since July 2012’s supplementary budget, which the authorities were committed to, shows a serious loss of fiscal control.
It is particularly worrying that the authorities have opted to contract debt at punitive rates to fund a surge in current expenditure at the expense of capital expenditure, says Fitch. This raises serious concerns about fiscal management and the sustainability of government finances if such a trend were to continue. It also raises doubts about long-term potential growth, which would suffer from a reduction in capital expenditure
Fitch has recently revised the Outlook on Ghana’s ‘B+’ rating to Negative, reflecting the severe deterioration in the fiscal deficit to 12.1% of GDP in the run up to the December 2012 election. This is nearly double the government’s target of 6.7% set in July’s supplementary budget and well above the initial budget of 4.8% agreed at the start of the year.
Successive years of large budget deficits have put upward pressure on public debt, which is expected to rise to 47% of GDP in 2012, up from 31% of GDP at the time of the 2008 elections and above similarly rated countries.
Fitch says curbing the deficit in 2013 - a challenging task but one made substantially easier by strong nominal GDP growth - will not be sufficient to restore confidence in the long-term sustainability of Ghana’s public finances.
The focus will need to shift to fiscal reform, especially in public expenditure management. Structural sources of fiscal slippage will need to be reduced, including fuel and utility subsidies, weak controls on capital spending, and civil service reforms.
A credible consolidation plan is needed to ease concerns about a major weakness in Ghana’s long-term creditworthiness. Most important, the government will need to prevent a repeat of the election-spending cycle, or risk creating adverse debt dynamics.
The report discusses the reasons behind the fiscal blowout, the prospects for consolidation as well as the evolution of debt dynamics.
Link to Fitch Ratings’ Report: Ghana; Negative Outllook as Public Finances Deteriorate