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Business News of Thursday, 23 April 2020

Source: thebusiness24online.net

Ghana’s debt-to-GDP to hit 76.8% after severe coronavirus shock — Fitch


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Credit rating agency Fitch is predicting that the country’s debt-to-GDP ratio would rise to about 77 percent by the close of the year due to the massive revenue shortfall caused by the COVID-19 pandemic.

The agency in its latest rate action on Ghana stated that although it expects the country to show a rapid turnaround after the pandemic, the public debt level — expected to increase due to unplanned borrowing to fight COVID-19 — will remain burdensome.

“Fitch forecasts general government debt to increase to 76.8% of GDP in 2020, owing to the combination of a wider fiscal deficit and cedi depreciation. Debt would equal 535% of government revenue, twice the ‘B’ median of 214%.

Furthermore, cedi depreciation has increased external debt servicing costs in local-currency terms and we forecast interest costs to reach 40.3% of revenue compared with the ‘B’ median of 8.6%.

We expect government debt to plateau in 2022, although there is a risk of larger-than-expected contingent liabilities from the energy sector,” Fitch said its latest rating action which was maintained at ‘B’ with a stable outlook.

According to the central bank, Ghana’s public debt measured as a percentage of GDP stood at 63 percent by the close of 2019.

GDP growth

According to Fitch, Ghana’s GDP growth will fall to 2% in 2020 although that is dependent on the extent and duration of the coronavirus outbreak and the resulting lockdown measures.

“We expect a relatively robust recovery to 5% in 2021, as oil production recovers gradually from an expected fall in 2020 and non-oil growth continues its recovery.

The possibility of bringing new oil and gas reserves into production brings some upside risk in the long term, but we expect that Ghana’s oil sector development will slow in response to the collapse of oil prices,” the agency stated.

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