Ghana’s international bonds are no more lucrative, as the country faces challenges with liquidity and refinancing its debt, some Senior Financial Analysts who spoke to Joy Business on the back of the downgrade of the country’s credit rating by ratings agency, Moody’s.
The downgrade to Caa1, from B3 means the country’s international bonds are in the “junk’ category and therefore investors must avoid them, worse than the B- rating by another ratings agency, Fitch. Some market watchers or analysts will also address a junk bond as a debt instrument that possesses low credit rating, below investment grade or an instrument that is not good to purchase.
The Senior Financial Analysts therefore want immediate action by government to address the situation. Executive Director of Dalex Financial Institution, Joe Jackson said the situation the country finds itself requires every stakeholder to be involved in addressing the mess.
“Now they [Moody’s] put us on Caa1 and they say, well, I’ll like to downgrade them again. So it’s not completely unexpected.”
“This is not the time for a lot more partisan talk. This is the time for all of us to get on board. How do we get out of this mess? That’s really that thing”, he pointed out.
Chief Finance Officer of Valley View University, Dr. Williams Peprah, on his part said the ratings by Moody’s simply means that Ghana bond is now rated as poor quality and high risk in terms of default. “There is a high propensity that Ghana will default. In fact this is even worse when we compare this to the ratings done by Fitch where Fitch put us in the B- category which simply means there’s a high speculative default.”
“So if you look at Moody’s, it is putting us in a very tight corner. Ghana’s bond is not lucrative now and it means that we cannot go to the international capital markets until we pay high interest or coupon rate to investors. So this is why they [ratings agencies] are advising that we should go for revenue generation”.
Moody’s said the weak revenue generation constrains government’s budget flexibility and tight funding conditions on international markets.
Dr. Peprah responded that the government needs to apply well-rehearsed and strategic methods to mobilize more revenue, which is far below its peers in Sub Saharan Africa, than borrowing.
“I’m sure that is why the E-Levy issue is coming up and it’s also a very difficult issue for all of us’.
“Secondly when we look at what is happening now, if the government doesn’t go to the international markets they will borrow from local commercial banks. We’ve seen a trend in which commercial banks are now buying government’s assets. This is going to bring out a “crowding out effect” so commercial banks will not be freely lending to individuals and companies to grow the economy”, he pointed out.
On the way forward, Mr. Jackson said “this is not the time for selling any single solution, but applying multiple solutions and different weapons to get us out of this mess. This is the time for all of us to admit that we are not in a good position, and maybe we ought to temper our expectations of what this country can give us.”
“If you’re a union, maybe this is not the time to press your salary increment claims; and all of us must know that tough times are here with us. The problems are not insurmountable. The problems can be resolved, but we need to get that way from the partisanship and say, let’s fix this.”
The ratings agency by the middle of this year will review their assessment of the country’s credit ratings and accordingly inform investors of the stability of the Ghanaian economy.