Ghana’s monetary policy lauded by Standards and Poor’s Global

Business News of Sunday, 16 September 2018



Finance Minister, Ken Ofori-Atta

Rating organization, Standard and Poor’s (S&P) Global has raised Ghana’s long-term foreign and local currency sovereign credit ratings to ‘B’ from ‘B-‘.

According to their latest on Friday, the country’s outlook is stable.

“The upgrade reflects our assessment that Ghana’s monetary policy effectiveness has improved, albeit from a low base, and will support the credibility of the inflation-targeting framework over the period,” it added.

Explaining further, S&P Global said the country’s improving banking sector stability and lower inflation support their view that the effectiveness and transmission mechanism of Ghana’s monetary policy have improved.

“The stable outlook balances Ghana’s fairly robust growth prospects, decreasing inflation, and narrower current account deficits against risks from still-high budget deficits and a high stock of public sector debt,” it stated.

S&P Global said it could lower its ratings if the country’s economic growth is significantly lower than it expected and if Ghana’s policymaking effectiveness were to weaken.

“For example, if fiscal deficits were to be materially larger than our expectations. We could consider raising our ratings if Ghana implements and adheres to measures that materially alleviate pressures on public finances and reduce public debt levels beyond our expectations.

According to the rating agency, it could also see prospects for an upgrade if the current account deficit narrows faster than it expected and external debt and gross external financing needs are significantly reduced.

Having peaked at a seven-year high of 19.2% (year-on-year) in March 2016, headline inflation continued to decline to 10% by mid-year 2018, supported by a relatively tight monetary policy stance.

“In our view, the Bank of Ghana’s (BoG) policy rate has also been fairly effectively transmitted through the financial system to market participants,” it noted.

S&P Global also observed that government’s recapitalisation of the banking system in 2018 is a fiscal expense weighing on it fiscal assessment, but should ultimately strengthen the banks and allow them to support financial intermediation in the economy.

“The ratings are supported by our monetary policy assessment and our view of Ghana’s fairly robust economic growth prospects. The ratings remain constrained by weak public finances from both a stock and flow perspective, sizable contingent liabilities, the country’s low GDP per capita, and high external debt levels,” it said.

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