The upgrade in Ghana’s sovereign credit rating announced by Moody’s, one of the three international credit rating agencies that rates this country, last weekend, has been well received by government and economists alike as good news and for good reason. The upgrade improves government’s negotiating hand ahead of its imminent new US$3 billion Eurobond issue, as well as in the refinancing of existing public debt which will follow the impending new issuance.
However, the average Ghanaian on the street can be forgiven for being somewhat bewildered by the sense of positive achievement being shown by government, its supporters and economists in general; there is still a disconnect between their personal finances and the improved credit rating.
Supposedly, that disconnect will be bridged sooner or later. The improved credit rating reflects improved macroeconomic fundamentals which provide the foundation for improved living standards among Ghana’s citizenry.
But even this relationship is tenuous. Moody’s credit rating primarily assesses Ghana’s ability to meet its foreign financial obligations, led by its foreign currency debt obligations and followed by its capacity to meet obligations such as payments for imports. This is different from an assessment of progress made towards economic development, which would have more impact on living standards in general.
Nevertheless, the latest rating upgrade is of vital importance, even if the average Ghanaian does not quite grasp its significance. Ghana’s public debt is debilitating even though the most commonly used measure of debt sustainability, the public debt to Gross Domestic Product ratio, understates the difficulty. A more meaningful, albeit less used measure, the public debt to public revenue ratio shows that almost half of Ghana’s public revenues are consumed by debt servicing. Indeed, managing the public debt is now arguably the biggest challenge facing Ghana’s economic management team
Therefore, an improved assessment of Ghana’s predicament by Moody’s which will influence the attitude of the international financial community towards financing the national debt is crucial to the country’s economic fortunes going forward.
But it does not reflect any changes in the rate at which Ghana is achieving economic development. Indeed, it is instructive that the new rating upgrade has come at a time that capital expenditure on infrastructural projects requisite for economic development has been largely forgone in order to accommodate fiscal consolidation.
Nevertheless, the rating upgrade reflects progress made towards the restoration of macroeconomic stability and this is a requisite for sustainable economic development going forward as different from the knee jerk efforts at such development done during much of the last decade which led Ghana into inordinately high public debt in the first place.
Consequently, this newspaper applauds government for its achievement even though it is only the foundation for economic development rather than actual accelerated economic development itself.
But even as we applaud government, we warn that the upgraded credit rating will not, in itself translate into more votes during the upcoming general election scheduled for the end of this year. But we expect that government is acutely aware of this; indeed, its willingness to focus on the restoration of macroeconomic stability as a foundation for sustained economic growth and development rather than adopt quick fixes that please the electorate but do not provide a sustainable foundation for better living standards over the medium term, is in itself worthy of further commendation.
We can only hope that going forward, whoever governs Ghana after the 2020 election will retain this focus on sustainability rather than resort to short term quick fixes aimed at winning the support of the electorate at the next election, but which all too easily fizzle into reoccurrence of macroeconomic instability at cost to all and sundry.