CEPA Pooh-Poohs Standard & Poor’s

By J. Ato Kobbie, Managing Editor

“Standard and Poor’s only want to influence international market against Ghana but they did a poor job,” the Executive Director of the Centre for Policy Analysis, Dr. Joe L. S. Abbey has stated.

Dr. Abbey said S&P behaved like they were assessing current economic management only to make reference to oil, which from all indications appear to be their real motivation. He said the pronouncement on Ghana is an attack on the Government and its management of the economy through the misuse of data because of the contest over who controls the country’s oil, adding that the suggestion that there was ‘lack of clarity in oil sector regulation and in the management of the government's oil revenues," was only a cover up.

He said the downgrading is anchored on what the rating agency had made to appear like a secondary matter and the ‘lack of clarity’ alluded to refers to nothing more than the dispute between Kosmos Energy/ExxonMobil and the Ghana National Petroleum Corporation (GNPC) and the Government of Ghana.

“Which oil revenue are we talking about,” queried Dr. Abbey challenging S&P to “come clean and point to which part of the oil revenue management Bill they found unclear and therefore were uncomfortable about.”

He said the argument that others have mismanaged and therefore Ghana will mismanage was a flawed one that must not be entertained.

The CEPA Boss said the downgrading of Ghana from ‘B+’ to ‘B’ by Standard and Poor’s, just like a recent Forbes publication that described Ghana as the ninth worst managed economy, smell of only one thing – oil!

Continuing, Dr. Abbey said on the basis of their history, CEPA was not surprised at the ratings put out by S&P, citing the pronouncement on Ghana with reference to the management of oil revenue, which has not arrived yet as dishonest.

According to Dr. Abbey, S&P, like other rating agencies are not there providing general services, because somebody pays them for the job they do. Dr. Abbey, flanked by leading officials of CEPA said it must be understood that rating agencies are also not disinterested in the work that they do.
On their performance the CEPA boss said the contribution of rating agencies to the recent international financial crisis is well-known as they over rated certain bonds that led to people rushing to buy them, only to be found out later to be worthless.
He said the problems posed by some of these rating agencies, has led to the European Union (EU) considering promoting their own rating agencies and these should inform everyone of what to make of their findings.
ACTUAL EVIDENCE
Dr. Abbey said from 2006 to 2008, CEPA had published findings that show that projections were too optimistic and the fact that budget deficit peeked at over 14% in CEPA’s evaluation .
He continued that in 2009 the budget deficit was even lower than the target set by government and therefore if anybody was going to talk about fiscal deficit, certainly not what this government had done.
He said the International Monetary Fund (IMF) and the World Bank had been appraising the economy annually and they had not come across any such deficits as S& P was talking about.
Dr. Abbey explained that it is the deficits that defined one’s borrowing requirements and debt sustainability, and therefore the higher the deficits the higher the borrowing required and vice versa.
He said to have a fiscal deficit of 9.4% which the donor agencies found acceptable and have therefore not stopped their programme with Ghana, “it is totally out of place and unwarranted for Standard and Poor’s to say medium term targets were unattainable.”
Dr. Abbey cautioned however, that under providing for the development budget continued to have adverse effects on the economy, since projects such as construction works had to continue and non-payments left contractors with huge indebtedness.
He said not paying contractors for jobs done has adverse social implications and therefore it was necessary that sufficient budgetary provisions are made to pay them.
He said where contractors and suppliers were not paid, this placed some amount of distress on the banks, form where these people have borrowed money and this is how the reference to the problems in the banking sector and supplier’s credit must be looked at.
Continuing, Dr. Abbey said the design of the country’s budgets allowed for government not meeting the budgetary requirements of many-a state institution hence their inability to deliver which is erroneously characterized as mismanagement.
We cannot use poor design of programmes and projects and come back to complain of mismanagement,” Dr. Abbey advised.
He told The Business Analyst that further examples exist in state owned organizations such as the Tema Oil Refinery (TOR), Volta River Authority (VRA), and Electricity Company of Ghana (ECG), which when not allowed to set prices that would enable them recover their costs would end up making losses.
These have contributed to the situation in the banking sector, including the Ghana Commercial Bank (GCB), which has been suffocating under the weight of TOR indebtedness.
Commenting on the recent Standard and Poor’s (S&P) downgrading of Ghana in its international ratings, the CEPA questioned why if the former government and the current one decided to shield consumers from the hikes in crude oil prices and therefore the full impact of prices for electricity, water and petroleum products that should be made to appear like it was just happening.
“Where was S&P when in 2007 Fitch and others were giving us the kind of ratings to enable us to go and borrow? Weren’t they aware that there were problems to do with pricing?
“Why now? Why is it that now that there is a conscious effort in trying to resolve this problem? Now that utility prices have shot up and there is agitation against that by organized labour and others?
“Why is it that now that the problem is being solved then somebody draws attention to it as a basis for downgrading,” Dr. Abbey queried.
“It is unwarranted, unfair and disingenuous,” he stressed.
According to the CEPA boss, some of the budget targets have been a bit ambitious but he could not recall also as a former Government Statistician any such longest period ever of sustained reduction in the level of inflation in the country’s history.
“So we’ve made a major achievement in doing this,” adding that even though there were challenges these difficulties should not be exaggerated to form the basis of downgrading us,” he told the paper
He said contrary to the postulations of S&P investments into the country is on the ascendancy and from the Bank of Ghana Monetary Policy Committee report of July 2010, foreign investments had increased by 17.5% at the end of June, over December 2009 levels.

Quoting a portion of the S&P report, which read: "The lowering of the ratings on Ghana reflects our view of the cumulative effect of a large and erratic fiscal deficit, substantial supplier arrears, high debt levels, loss-making state-owned enterprises, and problems in the banking sector," Dr. Abbey said, these are at best little understood by S&P but they are there.

The figures attributed to Ghana by S&P in its analysis as projections made, do not exist anywhere on official records and are sharply different from the actual official projections of 4.5% and 3.5% for 2011 and 2012 respectively, and 8.0% for 2010 (BoG/IMF).
Standard and Poor’s had stated: “In our view, however, its medium-term fiscal targets of a deficit of 2.1% in 2011 and 1.6% in 2012 are unrealistic.”

It would be recalled that last week, Razia Khan, Head of Macroeconomics and Research, Africa for Standard Chartered Bank, based in London, had also stated that Standard and Poor’s “citing of 'recent moves by the government to interfere with the sale of privately owned oil assets' (by Standard & Poor’s in its rating of Ghana) “suggests that other factors - not directly related to Ghana's creditworthiness - may have been significant in the decision.”

Again, a leading Ghanaian economist, Dr. Nii Moi Thompson had likened the S&P latest downgrading of Ghana to the influence of Kosmos-ExxonMobil stressing that “government's action on Kosmos' intended sale of its shares to Exxon had been anything but arbitrary.”

He had emphasized that this had been “in accordance with the rule of Ghanaian and international laws and certainly nowhere near the kind of savage beating that BP, for example, has taken from Obama and the American public,” and wondered: “Why, isn't a government allowed to seek the interest of its people without coming under the evil manipulations of organizations like Standard & Poor's?”

From: The Business Analyst: thebusinesssanalystgh@gmail.com