Fitch Ratings has confirmed that Ghana is likely to receive $3 billion over three years from the programme of the International Monetary Fund (IMF).
Bloomberg reported last week that the loan requested was double the amount of $1.5 billion the country requested a month ago.
The rating agency, after downgrading the country’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to CCC from B-, said, “We estimate that the programme could disburse as much as $3 billion and unlock budget support from other multilateral lenders.”
According to Fitch, the deal with the IMF is likely come through within the next six months.
It indicated, however, that the timing of such a deal was uncertain and would be dependent on the government’s ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics.
The rating agency said the most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs.
It estimates that the country faces $2.75 billion of external debt servicing in 2022, including amortisation and interest, and $2.8 billion in 2023.
“Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which have come to be a regular source of external financing for the government,” it noted.
Fitch asserted that they expected the government to meet its external debt obligations, in part, through a combination of a $750 million term loan from the African Export-Import Bank, $250 million in syndicated loans from international commercial banks, and up to $200 million from the government’s sinking fund this year.
It stated that per the 2022 mid-year policy review, the government is expected to source the rest from the IMF and other multilateral lenders.
“In the absence of an approved programme by the end of the year, the government would have to draw more heavily on its international reserves, which were USD7.6 billion, including oil funds and encumbered assets, as of June 2022,” it pointed out.
Fitch argued that the government’s high interest costs and low revenue will continue to be impediments to fiscal consolidation efforts.
For them, the 2022 budget’s medium-term fiscal framework had envisaged narrowing the deficit to below the existing deficit ceiling of 5% of GDP by 2024.
The expected consolidation was based on the expiry of pandemic-related expenditure items and a significant increase in domestic revenue, driven by new taxes, including a levy on electronic transactions.
It posited that delays in implementing the new revenue measures had resulted in lower revenue and the larger nominal deficit in half-year 2022 relative to budget forecasts.
The 2022 mid-year fiscal policy review presented in July contains an updated fiscal deficit forecast of 6.6% of GDP compared with the original deficit forecast of 7.4%, owing to an upward revision in nominal GDP, it said.
“We forecast the 2022 fiscal deficit at 8.1% of GDP. This is inclusive of energy-sector clean-up costs not contained in the government’s figure. The possibility of new revenue measures could lead to a further shrinkage of deficit in 2023, but the government’s slim majority in parliament could frustrate attempts to raise tax rates or implement new taxes,” it noted again.
Domestic Debt
On the domestic debt front, it said the government’s interest costs reached 47.5% of revenue in 2021, considerably above the current ‘B’ median of 10.7%.
“We expect interest costs to remain at or above 45% through 2024,” Fitch stated, and added that the interest costs largely reflect high yields on domestic debt.
“The government has increased its outstanding advances with the Bank of Ghana (BoG), providing some additional domestic financing and could conduct another private debt placement with the central bank as it did in 2020, but such a measure would necessitate parliamentary approval,” it asserted.
By Ernest Kofi Adu