Fitch Downgrade Due To Excessive Borrowing To Finance Political Promises – Analysts

Economic analysts have blamed the pressures of government’s many political promises for the country’s economic woes and the recent downgrade in Fitch’s ratings.

According to them, the continuous borrowing to fulfill expensive social and infrastructural development needs had led the country to a place of severe indebtedness that it continues to struggle to service those debts.

Speaking on Citi TV’s Point of View, economic analyst, Toma Imihere, suggested that the government’s political promises and the pressure to honor them in the face of criticism from opposition parties has caused government to borrow to unsustainable levels.

“A government comes to power and has made so many promises about social interventions and infrastructure and because of the indebtedness, a large part of its revenue already is going into serving debt so it goes to the Eurobond market to borrow money to fulfil those promises. When the government is borrowing that money, the government knows that it is putting itself in a bigger mess but if it doesn’t do it, the opposition will say it has failed. That has been Ghana’s situation.”

He remarked that successive governments have been borrowing at terms that put the burden of repayment on their successors.

The Director of Operations of Dalex Finance, Joe Jackson, said the borrowing is going to be expensive for the government and the country’s economy will experience turbulent times that require urgent action.

“We’ve been borrowing and our debt sustainability is getting shaky… Things are tough. Even if the politicians won’t admit it, see it yourself and prepare because it is not going to be easy. The more you insist on demands, the harder things get for all of us.”

International ratings agency, Fitch last week downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from B to ‘B-‘ with a negative outlook.

The downgrade, it said, reflects the sovereign’s loss of access to international capital markets in the second-half of 2021, following a pandemic-related [COVID-19] surge in government debt.

In the report, Fitch noted that, “this comes in the context of uncertainty about the government’s ability to stabilise debt and against a backdrop of tightening global financing conditions. In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high interest expenditure to revenue ratio.”

Many analysts have said the recent rating is not surprising given the macroeconomic situation of the country.

Bright Simons, an honorary Vice President of IMANI Africa suggested that the B- rating was far lenient but puts Ghana on the risk spot of possibly sliding further down to a level that could seriously prolong the country’s shutout from the international private capital markets.

The Dean of Business School at the University of Cape Coast, Prof. John Gatsi, has also said that the country’s growing debt profile made the downgrade imminent.

 

 

 

 

Source: citibusinessnews.com

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