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Fitch: Fiscal Path Key for Ghana's Post-Election Credit Profile
December 14, 2016 / 4:56 PM / a year ago

Fitch: Fiscal Path Key for Ghana's Post-Election Credit Profile

(The following statement was released by the rating agency) HONG KONG/LONDON, December 14 (Fitch) Ghana's ability to maintain its recent progress on fiscal consolidation will be an important factor in our sovereign ratings assessment following last week's elections, Fitch Ratings says. We think the incoming government is committed to Ghana's multi-year adjustment programme, but previous elections have led to fiscal slippage. Ghana's Electoral Commission declared Nana Akufo-Addo of the opposition New Patriotic Party (NPP) president elect after he secured 54% of votes cast, defeating incumbent John Dramani Mahama of the National Democratic Congress (NDC). The election process was smooth and Mahama conceded defeat, extending Ghana's track record of democratic elections since the end of military rule in 1992. Alongside more robust governance indicators than most 'B' category sovereigns, this supports Ghana's sovereign rating. Both parties voiced their commitment to fiscal consolidation during the election campaign. Retrenchment by the outgoing government has halved the fiscal deficit in the last two years via measures such as raising VAT and cutting public-sector salaries (we forecast a 2016 deficit of 5% of GDP, down from 10.2% in 2014), and has paid down arrears. This has kept Ghana compliant with its USD915m IMF extended credit facility. The NPP's manifesto commitments include "maintain fiscal discipline" and introducing a fiscal responsibility law to improve the budgetary process. The desire to cut debt servicing costs provides another strong incentive for fiscal consolidation. Our baseline fiscal forecasts reflect political commitment to deficit reduction and the role of the IMF programme as a policy anchor. They are consistent with general government debt falling from a peak of 72% of GDP at end-2015 to 69% this year and 56% of GDP in 2020, which is close to the current 'B' category median of 54%. However, risks to our forecasts are weighted to the downside. Fiscal slippage has been a feature of previous Ghanaian elections, as governments have sought to boost their standing with the population (the previous elections in 2012 heralded a marked widening of the fiscal deficit, which reached 11.6% of GDP the following year). Measures to stop ministries, departments and agencies spending without budgetary approval have been enacted, but there is still the risk that significant arrears appear later. The NPP manifesto includes higher infrastructure spending to eliminate economic bottlenecks as part of a plan for annual double-digit growth over the next four years. It also pledges to reduce the tax burden on the private sector through lower corporate tax and the removal of import duties and VAT from some items, but relies on revenue measures such as improving tax compliance, improving the quality of public finance administration, and higher oil and gas production to finance these tax cuts. This would make consolidation more challenging if growth disappoints or oil production at new fields is delayed. High inflation could have a fiscal impact if it keeps domestic funding costs elevated (yields can be as high as 20% on short-term instruments), although we think the Bank of Ghana may have scope to ease monetary policy in 2017, as the impact of electricity tariff adjustments drops out of CPI calculations, lowering headline inflation. We affirmed Ghana's 'B'/Negative sovereign rating in September, noting the progress made in fiscal consolidation and macroeconomic stabilisation under the IMF programme, but also the substantial downside risks, including around the election. Failure to narrow the budget deficit and stabilise government debt/GDP would be negative for Ghana's credit profile. Fiscal consolidation consistent with debt declining over the next two years could lead to a revision of the Outlook to Stable. Contact: Jermaine Leonard Director, Sovereigns +852 2263 9830 Fitch (Hong Kong) Limited 68 Des Vouex Road Central Hong Kong Ed Parker Managing Director, Sovereigns +44 20 3530 1176 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. 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