Ghana Receives B+/B Rating from S&P

LONDON, Sept 4 - Standard & Poor's Ratings Services said today it assigned its 'B+/B' sovereign credit ratings to the Republic of Ghana. The outlook is stable.

"The ratings reflect Ghana's heavy general government debt burden, low economic development, and weak fiscal flexibility," said Standard & Poor's credit analyst Mame-Fatou Diagne.

"These factors are balanced by the government's commitment to macroeconomic stabilization and reform, substantial debt-relief prospects under the Heavily Indebted Poor Country (HIPC) initiative, significant socio-political stability, and Ghana's improving external liquidity."

The ratings on Ghana are the first under a new initiative launched by the United Nations Development Programme with Standard & Poor's to help Sub-Saharan African and other developing countries to obtain sovereign credit ratings. With this new rating, Standard & Poor's now rates 96 sovereign governments worldwide.

Ghana's general government debt is estimated at 97% of GDP in 2003. External debt is mostly long-term and concessional, and its net present value is expected to be reduced by 56% after Ghana reaches the HIPC completion point. As a result, general government debt should fall below 60% of GDP in the medium term. However, the domestic debt burden is significant, as it is mostly short-term and at high rates of interest. Interest payments should account for nearly 28% of general government revenues in 2003.

Fiscal discipline, a key element in the current stabilization program, has improved, with the general government deficit narrowing to about 2.6% of GDP this year and to an estimated 1.8% in 2004, from an average of 6.4% in 1998-2002. With strong external donor support, the government is maintaining its commitment to fiscal restraint and beginning to focus on the necessary restructuring of state-owned enterprises. However, progress in restructuring the public sector has been slow and political pressures continue to curb the privatization of key enterprises.

Per capita GDP is low, at an estimated $374 in 2003. Although great strides have been made in reducing poverty, infrastructure deficiencies, institutional weaknesses, and a legacy of macroeconomic instability constrain economic diversification and the country's medium-term growth prospects.

Political and social stability in Ghana compares well with peers in the 'B' category. The democratization process continues to make progress and should be strengthened by the 2004 presidential and parliamentary elections.

External liquidity is also strengthening, owing to a reduction in current account deficits. Ghana's gross external financing requirement should fall to about 79% of international reserves in 2003, from nearly 450% in 2000. Although they remain vulnerable due to volatile commodity prices, reserves should continue to improve over the medium term thanks to debt relief.

"The government is expected to keep to its current policies of fiscal restraint and monetary stabilization, and, as a result, obtain substantial external debt relief under the HIPC initiative," said Ms. Diagne. "Ghana's credit standing could strengthen if the restructuring and privatization of public enterprises is vigorously pursued, thereby improving the country's growth prospects. Conversely, a slackening in fiscal discipline and stalled structural reforms could put the ratings under downward pressure."

Standard & Poor's Ratings