Given the accumulation of bad signals over the past few years, you could be forgiven for forgetting that Ghana had long been seen as a model of regional governance and something of an El Dorado for investors in West Africa. But there is a good reason for that: the country’s macroeconomic indicators have deteriorated right across the board. First of all, there was a fall of 48 places in five years in the most recent Doing Business ranking – Ghana is now in 118th position of this index that the World Bank created in 2003 as a way of assessing the business environment in 190 countries. Ghana also lost 24 points in the Corruption Perceptions Index published every year by NGO Transparency International. Meanwhile, the UNDP has estimated that the state budget is losing nearly US$2 billion annually because of corruption.
Exclusion from international markets
On 14 January, the situation worsened: UK ratings agency Fitch Ratings downgraded Ghana from B to B-. Yet more bad news against a background of uncertainty regarding the government’s ability to stabilise sovereign debt and toughening world finance conditions. Basically, this downgrading means that in the wake of the explosion in the size of the public debt generated by the pandemic, the country will not be in a position to issue on international capital markets in 2022, or if it is able to do so, only at punitive rates. This is a catastrophe for Ghana which will find itself unable to issue Eurobonds – a major source of financing for the country. Given that 3.3% of its GDP (US$2.7 billion) already goes on paying off this debt, this penalty will further eat into the potential sources of financing available to Ghana to get its economy back onto an even keel. Ultimately, its ability to undertake its planned budgetary consolidation could be hindered by increased domestic debt issuance, with higher interest rates against a backdrop of an already exceptionally high interest expense-to-income ratio.
Bloomberg has also expressed alarm at Ghana’s rising sovereign debt which is now spread over 1000 points – its highest level since April 2020. Highlighting the fact that its US dollar-denominated bonds have seen their worst start to a year on the emerging markets, it is beginning to wonder if the sub-region’s second-largest economy will be able to maintain its level of debt if a steep increase in interest rates excludes it from international markets. In the current environment, the Ghanaian executive’s budgetary consolidation plan, which is banking on income from the 2022 budget – particularly a new 1.75% electronic tax on certain digital transactions and changes in the way in which certain taxes and import duties are calculated – seems somewhat laughable.
Long-term reputational damage
In addition to this accumulation of bad signals, the country’s reputation is increasingly damaged. It has been sorely tested by two years of pandemic, during which corruption scandals have come thick and fast (Agyapa Royalties Deal, the listing of which on the stock exchange was tainted by suspicions of irregularities, recurring accusations of suspicious practices within the GRA, corruption within the interministerial committee of illegal gold mining, etc.). Add to that the election-related violence in December 2020, the social unrest in the wake of the “Fix the country” movement and certain legislative moves seen in a poor light abroad – such as the draft bill to sentence homosexuals to two years’ imprisonment – the start of Nana Akufo-Addo’s second term as president will have cost the country dearly, in every sense of the term.