Ghana will have to pay more interest to investors if it goes to the international market to borrow to finance the budget.
According to the Head of Finance at the Valley View University, Dr Williams Peprah, the country’s balance sheet was weaker because of the very high debt levels.
International ratings agency, Moody’s, affirmed Ghana’s B3 long-term issuer ratings and also kept its economic outlook at negative.
It attributed that to the high debt burden, continued weak debt affordability, high gross borrowing requirements and ongoing liquidity challenges.
Dr Peprah told Joy Business the authorities must rationalise expenditure and do more to grow the revenue base, from the about 13 per cent of Gross Domestic Product to 20 per cent.
“Moody’s affirmation of B3 ratings on Ghana’s bond exposure is an indication that our debt instruments presently is classified as highly speculative. This means that anytime Ghana goes to the international market to borrow, it will be paying high coupon or interest. The Moody’s assessment is basically based on our debt exposure where we are using about 40 per cent to 50 per cent of our revenue to service debt,” he said.
“Anytime Ghana goes to the market, it must compensate investors with a high interest or coupon before they will lend any funds to us. So this is not good news to the country which must be looked at. I think that the government must make sure that everybody pays his share of the revenue in the form of taxes…it must be addressed quickly. So basically the balance sheet of Ghana is not very good and we should be able to turn things around quickly”, Dr Peprah added.
Moody’s also expressed concern about Ghana’s Environmental, Social and Governance considerations, saying, the score is highly negative, reflecting its high exposure to social risks.
“Currently as we speak, our environmental assessment is also suffering because of the mining activities, cocoa farming activities. Once it’s like that it has an impact on the revenue that will be coming in from these activities”, Dr Preprah responded.
He further added “admittedly, in Ghana, we are also slow in collecting taxes from our citizenry which is the mode of bringing revenue to be able to service these debts.”
He also urged the authorities to work hard to address the housing deficit challenge, saying, such move will increase investments in the sector and increase revenue.
Despite the downside risks, Moody’s said Ghana’s credit profile benefits from strong economic growth potential.
It therefore expects GDP growth to rise towards six per cent in 2022 and stay around these rates in the medium term in the absence of new shocks.