Ghana Downgraded Deeper Into Junk by Moody’s on Oil Slide
- By: Pauline Bax | Reuters
- Mar 20, 2015
- 2 min read
Ghana had its credit rating cut by Moody’s Investors Service after the West African nation warned that tumbling oil prices will worsen its government budget deficit.
The sovereign’s foreign-currency rating was lowered one step to B3, six levels below investment grade, Moody’s said Thursday. The outlook on the grade is negative. Standard and Poor’s assesses Ghana at an equivalent B-, while Fitch Ratings has it one grade higher, at B.
The move was the second downgrade by Moody’s in less than a year for a nation that has agreed to a $1 billion loan from the International Monetary Fund. The second-biggest economy in West Africa is struggling to rein in inflation and grappling with a sliding currency that’s the continent’s second-worst performer this year after the Zambian kwacha.
“The negative outlook reflects further downside risk to the country’s debt dynamics and liquidity pressure in the short-term if the country’s policies fail to successfully contain its fiscal deficit, stabilize its currency and address current impediments to higher economic growth,” Moody’s said.
The yield on benchmark dollar bonds due in January 2026 rose 28 basis points, or 0.28 percentage point, to 9.27 percent at 11:48 a.m. in Accra, the capital. The cedi gained 0.8 percent to 3.715 per dollar.
Investor Worry
The downgrade itself is less of a worry for investors than Moody’s reasons for it, Nicholas Spiro, London-based managing director of Spiro Sovereign Strategy Ltd., said by phone on Friday. “The rationale for the downgrade, which is concerns about the ability and the willingness of the government to implement the IMF program, that’s what is worrying on sentiments.”
The IMF has pledged to help bolster Ghana’s currency on condition the government reduces spending on salaries of civil servants.
Finance Minister Seth Terkper said in a speech to parliament last week the budget deficit will be wider than previously projected because a decline in crude prices has hurt revenue. The target for this year is 7.5 percent of gross domestic product, instead of 6.5 percent forecast in November, Terkper told lawmakers. Ghana became an oil exporter in 2010.
The government doesn’t have money to fuel power plants, which since December has led to planned power outages that sometimes last all day in Accra. Inflation accelerated to 16.5 percent in February.
To contact the reporter on this story: Pauline Bax in Accra at pbax@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net Sarah McGregor, Michael Gunn
Source: Reuters.com
By: Pauline Bax
