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Standard & Poors revises Ghana’s outlook

By Elorm DESEWU

Standard & Poors, one of the world’s rating agencies, has cut Ghana’s outlook to negative, based on a deteriorating macro-economic environment.

According to S&P, “the negative outlook reflects the likelihood of a downgrade if the planned fiscal correction is not fully implemented or debt financing challenges intensify in the context of shallow domestic market and we can global risk appetite.”

S&P rates Ghana as B+ on its long term and B on its short-term rating and had previously had the country on a stable outlook.

According to S&P, the rating was still supported by the prospect of significant oil production by the last quarter of this year.

Recently, the International Monetary Fund (IMF) staff mission to Ghana endorsed the government’s macro-economic targets.

The IMF estimates that the economy expanded by 3 – 4 percent in 2009, notwithstanding the global crisis, as cocoa and gold exports remained strong.

This is down from 7.3% in 2008 a year of highly expansionary fiscal policies that destablised the economy.

According to the IMF, for 2010 a modest upturn in growth to the 4 – 5 range was projected, boosted by investments linked to the offshore oil sector, which will come on stream in 2011.

Inflation is projected to further decline to a single digit by the end of 2010, as it slowed to 14% in February from 20 – 21% in the first half of 2009.

With a sharp downturn in imports, the external current account recorded its smallest deficit in five years and the Ghanaian cedi has strengthened against the dollar since July 2009.

International reserve cover rose to 3.0 months of imports of goods and services at the end – 2009, up from 2.0 months of import cover at the end of 2008.

According to the IMF, fiscal management remains Ghana’s main challenge. The budget deficit was reduced to 9.7% of Gross Domestic Product (GDP) in 2009, in line with programme targets.

However, the deficit would have been substantially larger, but for new domestic expenditure arrears of about 4% points of GDP.

According to the IMF, for 2010, it supports the government’s revised deficit target of 8% of GDP and welcomes plans to further reduce the deficit to 3 – 5% of GDP in 2011 – 2012, buoyed by oil-related revenues of 5% points of GDP or more.

Under these projections, public debt would rise to 6332% at the end of 2010 before declining in 2011 – 2012, as the fiscal deficit is reduced.

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