May 12, 2017 / 11:24 AM / 3 months ago

Fitch Revises Outlook on Ghana to Stable: Affirms at 'B'

(The following statement was released by the rating agency) HONG KONG, May 12 (Fitch) Fitch Ratings has revised the Outlook on Ghana's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to Stable from Negative and affirmed the IDRs at 'B'. Fitch has also affirmed the issue ratings on Ghana's senior unsecured foreign and local currency bonds at 'B', as well as the 'BB-' rating on Ghana's USD1 billion partially guaranteed note. Ghana's Country Ceiling and Short-Term Foreign and Local Currency IDRs have been affirmed at 'B'. KEY RATING DRIVERS The revision of the Outlook on Ghana's IDRs reflects the following key rating drivers: Ghana is making progress in stabilising its economy after its recent crisis period, with an expected revival in GDP growth, declining inflation, a more stable currency and increasing foreign exchange reserves. Furthermore Fitch judges that the new government will make progress in reducing the budget deficit after the election-related slippage in 2016, albeit with continued downside risks. Fitch expects growth to improve to 6% in 2017 from an estimated 3.6% in 2016, when it was hampered by lower than expected oil production and power cuts. CPI inflation fell to 12.9% year on year in March, from a peak of 19% in March 2016. The cedi has recovered to 4.2/USD, after depreciating to 4.7/USD in early March. The improvement in the macroeconomic environment has allowed the Bank of Ghana to cut its policy interest rate to 23.5% from a peak of 26% in 2016. Further, rising oil production and the benefits from macroeconomic stability will support Ghana's medium-term growth potential above 6%, a key rating strength. Ghana experienced a blow-out in the 2016 budget deficit, which widened to an estimated 8.9% of GDP (on a cash basis) in the run-up to December general elections, compared with a government and IMF target of 5.3%, and an outturn of 6.3% in 2015. The cash deficit includes up to USD1.3 billion (3% of GDP) in off-budget and unapproved spending. On a commitment basis, accounting for an additional USD650 million in unpaid commitments, Ghana's deficit widened to as much as 10.5% of GDP. Fitch notes that some of the unapproved expenditure is presently being audited and a significant chunk may be written down, which would lower the deficit. The election resulted in a win for the New Patriotic Party, Ghana's centre-right party, which had been in opposition since 2009. In March, the new government announced its 2017 budget, which calls for fiscal consolidation, and measures to strengthen public financial management. Fitch forecasts the 2017 budget deficit to narrow to 7.5% of GDP on a cash basis, and further to 5.5% in 2018. The government's 2017 deficit forecast of 6.5% of GDP is based on an expected increase in tax revenues and a cut to capital expenditures. Fitch believes that the expected increase in tax revenues will be difficult to realise, as the budget contains significant tax cuts aimed at boosting the business climate. Fitch notes that Ghana has historically underperformed its budgeted revenue projections. On the expenditure side, interest costs will continue to exert upward pressure. Ghana's interest costs are 32% of its general government revenues, a level well above the 'B' median of 9%. Also, a lack of transparency and accountability within the line ministries has persistently led to substantial off-budget spending and the accumulation of arrears. Successful implementation of the measures outlined in the Public Financial Management Act, 2016 would help control expenditure and keep spending focused on the policy priorities outlined in the budget. Gross general government debt has stabilised, experiencing a slight increase to 73% of GDP at end-2016, from 72% at end-2015. Fitch expects the debt/GDP ratio to decline to around 71% by end-2017 due to strengthening of the exchange rate (62% of debt is foreign currency denominated), lower budget deficit and robust nominal GDP growth. However, Ghana's debt level will remain higher than peers both as a percentage of GDP (the 'B' median is 56% of GDP) and as a percentage of revenue. Ghana's general government debt/revenue is 366%, compared with the 'B' median of 225%. Ghana's USD915 million Extended Credit Facility (ECF) with the IMF is a key support for the sovereign ratings. The incoming government has signalled its commitment to complete the programme, but has engaged with the Fund in renegotiating some of the programme's indicative targets and structural benchmarks. IMF staff completed the fourth review of the ECF in March and it will go to the IMF Board for approval before the end of June, allowing for the dispersal of an additional USD116 million. Fitch believes that the government remains committed to successfully completing the current programme, which is due to run until 2018. Ghana's 'B' IDRs reflect the following key rating drivers: Ghana's external finances are a rating weakness. Fitch forecasts the current account deficit to narrow slightly to 6.3% of GDP in 2017, from 6.7% in 2016, but remain above the 'B' median of 5.7% of GDP. Increases in oil and gas exports will help Ghana's export performance, but rising imports will keep the current account deficit from narrowing significantly. International reserves increased by USD460 million in 2016, ending at USD4.9 billion, about 2.8 months of current external payments. Fitch expects that external debt payments due in 2017 will limit reserves accumulation and forecasts reserves to reach USD5.2 billion at end-2017. The ratings are supported by World Bank governance indictors and business environment indicators that are stronger than the 'B' median, underlined by the peaceful transition of power in December. However, the ratings are constrained by low GDP per capita, which at USD1,509 is less than half the 'B' median, low human development indicators and dependence on commodity exports. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Ghana a score equivalent to a rating of B on the Long-Term FC IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC IDR Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The main factors that, individually or collectively, could trigger negative rating action are: - Failure to narrow the budget deficit and reduce government debt/GDP. - A decline in international reserves. - An increase in macroeconomic instability. The main factors that could lead to a positive rating action are: - A reduction in the budget deficit and a marked decline in government debt/GDP. - An improvement in Ghana's external position, such as a narrowing of the current account deficit and the rebuilding of the external reserves position. - A sustained improvement in macroeconomic stability. KEY ASSUMPTIONS Fitch assumes that Ghana's oil production increases as new fields come on stream over 2017-2018. Fitch assumes Brent oil prices will average USD52.5 per barrel in 2017 and USD55 per barrel in 2018. Contact: Primary Analyst Jermaine Leonard Director +852 2263 9830 Fitch (Hong Kong) Limited 68 Des Vouex Road Central Hong Kong Secondary Analyst Ed Parker Managing Director +44 20 3530 1176 Committee Chairperson Michele Napolitano Senior Director +44 20 3530 1882 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below