An American credit rating agency known as S&P Global Ratings on August 5th, 2022 downgraded Ghana’s credit rating from B- to CCC+, reflecting Ghana’s limited commercial financing options, constrained external and fiscal buffers.
S&P Global Ratings has lowered Ghana’s foreign and local currency and Sovereign ratings to CCC+ and Ranking Member on the Finance Committee of Parliament, Dr Cassiel Ato Forson with some senior members of the National Democratic Congress (NDC) are extremely happy with this report.
However, Dr. Ato Forson and the NDC members failed to further read about the reasons cited by S&P Global Ratings in support of its CCC+ rating for Ghana.
The S&P Global Ratings stated in its report that, “the COVID-19 pandemic and the Conflict in Russia-Ukraine have MAGNIFIED Ghana’s fiscal and external imbalances”. This means the CCC+ rating is NOT as a result of mismanagement or incompetence on the part of Akufo-Addo’s Government but due to external factors as stated by S&P Global ratings in its report.
The current CCC+ rating by S&P Global Ratings might not be the true reflection of the reality of Ghana’s creditworthiness and its economic viability because among several other reasons, Ghana, in June 2022, was ranked 1st in West Africa and 2nd in Sub Saharan Africa by Fitch Solutions, research arm of Fitch Credit Ratings Agency as the BEST Destination for Investments and trade. Ghana had Trade and Investment Risk Score of 50.9%, outperforming the West African average of 36.4%.
According to RMD Analysis, Ghana was ranked the TOP Investment Destination in West Africa beating Nigeria, Ivory Coast, Senegal and the rest of West African Countries.
According to World Bank Report(2020), Ghana is the LEADING Destination for foreign investment in West Africa and one of the fastest growing economies in the world.
Fortunately for Ghana and unfortunately for S&P Global ratings, Ghana has successfully already secured $750 million loan from African Export-Import Bank(Afrexim Bank), $1.3 billion Cocoa syndicated loan plus going back to the IMF and also supported by E-levy policy.
The re-profiling of Ghana’s debt certainly discredit the CCC+ rating by S&P Global Ratings therefore there is no cause for worry. S&P Global Ratings will definitely revise its notes and properly rate Ghana again.
Ghana under Akufo-Addo’s government will not default on its pending maturing Eurobonds, Investments as predicted by IC Securities in its brief on Ghana.
Excellent credit ratings only determine the ability and flexibility of a Sovereign government to borrow more from the market (Stocks, Bonds or Commodities). Beyond this, there is nothing special about credit ratings and it does not define the success or failure of an economy.
Do Ghanaians want the government to borrow more money or not from the foreign market? Maybe not.
E-Levy, IMF and the syndicated loans will definitely push Ghana’s credit rating back to the top with a positive stable outlook.
The business of political parties using Credit Ratings to do politics is very annoying. So far since Independence, NO political party including both NPP and NDC have been able to help Ghana to attract credit ratings of AAA, AA+/AA/AA-, A+/A/A-, BBB+/BBB/BBB- and BB+/BB/BB-The best credit ratings that both NPP and NDC have been able to achieved under S&P GLOBAL Ratings is B+/B/B-.
Credit Rating Agencies are mostly private organizations which regularly review credit ratings of countries and corporations. They then give an outlook on long-term development of the economy being Positive, Stable or Negative.
Currently the four largest Credit Rating Agencies are:
1. Standard and Poor’s(S&P) Global Ratings, founded by Henry Varnum Poor in the United States of America. Its headquarters is in the USA.
2. Fitch Ratings, founded by John Knowles Fitch and it is based in New York City and London.
3. Moody’s Investors Service, founded by John Moody. Its headquarters is in the USA.
4. DBRS Morningstar, founded by Walter Schroeder. Its headquarters is located in Toronto, Canada.
These credit ratings agencies are forward-looking opinions about the credit risk that reflect the creditworthiness of a Sovereign government, entity or security.
Credit ratings improve credibility, integrity and confirm a good history of a borrower in the past. Credit rating determines the likelihood that the borrower will be able to pay back a loan within the confines of the agreement without defaulting. Credit ratings mostly play a significant role in a decision by an Investor as to whether or not to purchase bonds.
A poor credit rating indicates that there is a larger possibility that the Sovereign Government might not be able to make its bonds payments.
Some of the factors considered by Credit Ratings Agencies before assigning a credit rating to a Sovereign State or Corporation are:
1. Past history of borrowing and paying off debts. Missed payments or defaults on loans impact negative ratings.
2. Future economic potential
4. Size of Government debt
5. Value of the National Currency
6. External factors that might affect the Country’s economy such as global financial crisis, sanctions, pandemic, War, unforeseen circumstances etc.
Sovereign credit ratings apply to national governments, Corporate credit ratings apply to Corporations, and Credit Scores apply to only individuals.
Credit Bureaus or Consumer Credit Reporting Agencies such as Equifax, Experian and TransUnion provide information relating to the creditworthiness of an individual.
S&P Global Ratings use the following Letter Index and its meaning to give credit ratings to Sovereign governments/Countries/Corporations:
1. AAA: The highest level of creditworthiness, exceptional stability of the economy.
2. AA+/AA/AA-: Very high creditworthiness and sustainability of the economy.
3. A+/A/A- :High creditworthiness but the economy is sensitive to changes in circumstances and the global financial situation.
4. BBB+/BB/BB- : The economy is stable in the short term but maybe unstable in the long term due to the presence of adverse economic and financial factors.
5. B+/B/B- : The Country is creditworthy at the time of assessment but the economy is vulnerable to adverse economic, financial and business factors.
6. CCC+/CCC/CCC-: The economy is weakened, creditworthiness depends on the availability of favorable economic, financial and business factors.
7. CC : The economy is vulnerable, there is a possibility of default.
8. C : The economy is extremely vulnerable, very low creditworthiness.
9. D : The economy is in default, credit obligations are not met.
According to the S&P Global Ratings, the 11 Countries with AAA Credit ratings are: Germany, Australia, Canada, Switzerland, Denmark, Liechtenstein, Luxembourg, Netherlands, Norway, Sweden and Singapore.
Interestingly, S & P Global Ratings has rated these powerful Nations are: USA is rated AA+, UK is rated AA, China rated A+, Japan rated A+ and France rated AA.
Russia is placed in a category known as Selective Default, which indicates that Russia has FAILED to pay bondholders on a specific type of debt(foreign currency debt). Ukraine is rated CCC+
The question is, in terms of the success and size of an economy is:
Ukraine better than Russia? Certainly not.
Azerbaijan(BB+), Bahamas(BB), Austria(AA+), Nigeria(B-), Benin(B+), Ivory Coast(BB-), Kenya(B+), Malta(B), South Africa(BB) better than Russia or Ukraine? Certainly not.
Benin(B+) and Mali(B) better than Nigeria(B-) and Ethiopia(CCC)? Certainly not.
Ivory Coast(BB-), South Africa(BB) and Kenya(B+) better than Montenegro(B), Nigeria(B-), Russia, Ukraine(CCC+)? Certainly not.
Benin(B+) better than Egypt(B)? Certainly not.
Liechtenstein(AAA) Luxembourg(AAA), Sweden(AAA), Norway(AAA), Singapore(AAA), Denmark(AAA), Netherlands(AAA), Canada(AAA), Australia(AAA), Switzerland(AAA) and Germany(AAA) better than USA(AA+), UK(AA), China(A+), Japan(A+), Russia(Default)? Certainly not.
Turkey has been rated by S&P Global Ratings as B+ yet the economy of Turkey is collapsing with an inflation rate of 79.6%.
Credit Ratings does not necessarily determine the size and success of any economy. It only gives a Country the credibility and integrity to borrow more money from the foreign markets(bonds, stocks and commodities). Nothing less or more.
EDITOR’S NOTE: The author, Mr. Razak Kojo Opoku, Founder and President of the Concern Voters Movement (CVM), is an entrepreneur, political strategist.