How Ghanaians reacted to S&P B- ratings

… economist assures it won’t affect investor confidence

The most recent ratings of the Ghanaian economy and fiscal stability by the internationally acclaimed rating agency, Standard & Poor‘s (S&P), have not been welcomed by many Ghanaian economists and the government.

Already, the Finance Ministry has described the rating as unfortunate. The Rating Agency had lowered Ghana’s long-term foreign and local currency sovereign credit ratings to B- from B and affirmed its B short-term ratings.

A press statement by the ministry said that while it recognized that the downgrade was widespread, affecting other countries worldwide, it found it disturbing that rating agencies would choose that path at a time when countries, including Ghana, are battling an unprecedented crisis. But, an economics professor has refuted assertions that the rating will affect investor confidence.

“The agency is doing its job by rating. However, the timing is not too good, but I believe well-meaning people out there, investors and the like will look at this rating and understand it within the context of the pandemic that yes we have been downgraded but within the context of the pandemic”, Professor Peter Quartey, a senior researcher at the Institute of Statistical, Social and Economic Research reacted.

He noted that, nobody expected an upgrade so it is not surprising, but it is something that we were all expecting, except that I believe investors who will see this data will be discerning. We are not in normal times and it was not just Ghana but several other countries that were downgraded because of the effects of the pandemic.

The outlook is adjudged stable. The COVID-19 pandemic-related expenditures elevated the fiscal policy stance. This was to ensure that we save our people and provide relief to many Ghanaians severely impacted by the pandemic. This was the fundamental reason for the lowering of the rating.

How Ghanaians reacted to S&P B- ratings

A review of global credit ratings indicates that lowering of sovereign credit ratings has affected more than 80 countries and there have been more than 100 negative outlook revisions for this year.

Most of these credit rating downgrades and negative outlook revisions are heavily concentrated on the countries that previously were at B/B2 credit ratings.

These adverse rating actions have touched almost all continents as rating agencies react to the effects of the pandemic on the global economy.

In Ghana, the primary focus is on saving lives and livelihoods which may require some temporary fiscal and economic adjustments including some one-off expenditures. This position was aptly echoed by President Nana Akufo-Addo in one of his addresses to the nation on the pandemic…” We know how to bring the economy back to life. What we do not know is how to bring people back to life.”

The government chose to save lives and therefore instituted temporary life-saving initiatives and interventions aimed at protecting the general population against the negative economic effects of the pandemic.

These necessary interventions, which led to significant unbudgeted expenditures, included subsidies on water and electricity to support vulnerable households during the lockdown period.

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The Government also provided credit to MSMEs whose businesses were most-impacted by the lockdown. Despite these interventions, Ghana’s economic fundamentals remain strong, and recovery prospects are high and this is reflected in the positive narrative on how Ghana has managed the economy under the pandemic. In addition, Ghana’s medium-term plan has a robust strategy to safeguard growth.

As at September 7th, our fatality rates have been less than 0.7% as compared to 2.4% for Africa and 3.25% globally. Our recoveries are over 97%, compared to 79.7% for Africa and 71% globally. Our cases as of 10th September 2020, stood at 842.

As the South African Revenue Services Commissioner recently argued “Whilst we understand the underlying factors that are pointed out by the rating agencies, we think that during such a time of crisis, where the whole world is recalibrating and redefining its economic status, for any downgrades to be issued during this time is like kicking us when we’re down.” We, therefore, call on Rating Agencies to seriously consider freezing any rating actions during global pandemics such as COVID-19. It is very unfortunate that rating agencies will choose to downgrade our countries in these unprecedented times.

S and P Global Ratings noted the significant positive developments in the areas of current account position, external reserve build-up, and the unparalleled stability witnessed in interest and exchange rates. Compared to Ghana’s peers, the GDP growth is still positive, despite the global crisis.

Going forward, we expect that with the gradual easing of restrictions, the economy will swiftly rebound and all the one-off expenditures eliminated. We have a clear path towards the restoration of economic stability in the short to medium term.

We will sustain our progress and accelerate this through the GHS 100 Billion Ghana CARES transformation programme within the general policy framework of Ghana Beyond Aid and certainly beyond the pandemic.

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By Adnan Adams Mohammed

Ghana CARESGhanaianpresident Nana Akufo-Addorating agencyS&PStandard & Poor'