A lecturer at the Catholic University College in Sunyani Dr. Charles Addo has challenged predictions by GN Research that Ghana’s economy may be downgraded due to poor economic factors in the country.
According to the academician, some of the factors given by the research firm to arrive at their conclusions have changed, and others are likely to change in the coming days.
GN Research had said in their report that Ghana’s poor economic performance in managing its debt stock, currency, and high budget deficit as well as falling foreign direct investment coupled with low commodity prices could be the debilitating factors.
“As well known by the new President of Ghana, Nana Addo Danquah Akufo-Addo, the implications of such actions can affect the country’s ability to attract foreign direct investment as it gives investors signals of macroeconomic challenges; it also defeats policy credibility, especially when credibility tags are against the previous administration’s failure to achieve economic and political leadership. Arguably, the most challenging stress about Ghana could be the morality to increase the debt stock levels above the 71% of GDP at a high price.
“Certainly, the ability for Ghana to borrow in the international market may be curtailed. The downgrade will cause government to resort to domestic borrowing since it is unable to borrow in the international market. This will harm businesses, especially those in the construction and manufacturing sector, where government domestic borrowings reduce lending to the private sector thereby reducing investment and economic activity,” GN Research noted.
Reacting to the findings, Dr Addo said a lot of the conditions that precipitated the forecast by GN Research are changing under President Akufo-Addo.
“Even though it is possible that Ghana may record a downgrade, according to a GN Research report the likelihood is that with the advent of this new administration, the rating is rather likely to take a turn for the better. The report based its predictions largely on the management of the country’s debt stock of about GH?120 billion, which is the driver of Foreign Direct Investment (FDI).
It must be noted that credit agencies use a combination of both qualitative and quantitative criteria to determine sovereign rating. For example, the debt to GDP ratio of about 72% is quantitative since too much debt means a country’s ability to honor maturing obligations become negatively impacted,” he argued in an interview with StarrFMonline.com.
He added: “But one of the important factors they also look out for is the country’s commitment to fiscal discipline and eradication or, at least, reduction of corruption to the barest minimum. What got us into this huge debt situation and consequently the downgrade is fiscal indiscipline and corruption. But with the new administration of President Nana Akufo-Addo, commitment to fiscal discipline and measures aimed at curtailing corruption like the institution of the Office of the Special Prosecutor to specifically deal with the problem of corruption has been whipped up.
Those are certainly a plus for Ghana’s sovereign rating. Rating agencies also look for qualitative factors such as, labor unrest or strike actions which tend to disrupt productivity and FDI, in turn, adversely impacts on the country’s credit rating. For example, state attorneys called off their 3-month strike when the President Nana Akufo-Addo met them.
Why? Because they had confidence in the new administration and they understood they needed to give it time to start putting measures in place to check corruption and fiscal indiscipline within the system”.
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