Ghana riskier after fiscal slippage

Ghanaian policymakers have received a wake-up call over the state of the country’s public finances from analysts participating in Euromoney’s Country Risk (ECR) survey.

Contributing economists knocked 0.1 points off the country’s government finances score last week, cementing concerns over the country’s debt sustainability and budgetary requirement.

The score downgrade has resulted in Ghana falling one place to 78th in the ECR global rankings. It means the country’s government finances score (3.6 points) is now at an all-time low and below that of other African countries to have issued Eurobonds (see graph).

Fiscal slippage following last year’s presidential elections appears to be the largest contributory factor to the sovereign’s rising debt burden, according to a credit report by Moody’s. “We expect the government's fiscal space to remain impaired over the medium term following the dramatic deterioration in its balance sheet in the run-up to the presidential election last December,” the rating agency noted in a recent report.

An overspend on public sector wages, lower than expected corporate income tax receipts and fuel subsidies resulted in the government overshooting its fiscal deficit target by 5.1% of GDP last year, after peaking to 11.8% of GDP.

The IMF noted in a recent report that: “A large current account deficit, growing public debt and a low official reserve buffer all expose the economy to significant stability risks. A rising public sector wage bill and costly energy subsidies led to a near tripling of the cash deficit to 12% of GDP in 2012.”

The government’s social spending commitment left the country’s general government debt at 56.5% of GDP in 2012, well above the B median threshold of 37%.


Ghana’s riskier outlook is compounded by the country’s high susceptibility to commodity price swings and its low levels of foreign-currency reserves, which amount to less than three months of import cover, according to Moody’s.

The recent score change reflects the consensus view among observers that the government must look towards savings in public expenditure and the optimization of revenue collection streams in the oil and mining sectors, while simultaneously closing tax loopholes in order to avoid the risk of further downgrades.

This article was originally published by Euromoney Country Risk. To find out more, register for a free trial at Euromoney Country Risk.