GHANA’S DEBT-TO-GDP RATIO AND THE DOWNGRADING BY STANDARD AND POORS

 

 

GHANA’S DEBT-TO-GDP RATIO AND THE DOWNGRADING BY STANDARD AND POORS – WHAT TO MAKE OUT OF IT.

MANY PEOPLE ARE WORRIED ABOUT GHANA’S CURRENT DEBT SITUATION, AND THE DOWNGRADING BY THE RATINGS AGENCY STANDARD AND POOR’S. BUT IS THE SITUATION REALLY AS BAD AS IT SEEMS?

ACCORDING TO THE RATINGS AGENCY FITCH, GHANA WILL HIT A DEBT-TO-GDP RATIO OF 77% BY THE END OF THE YEAR 2020. https://www.ghanaweb.com/GhanaHomePage/business/Ghana-s-debt-to-GDP-to-hit-76-8-after-severe-coronavirus-shock-Fitch-932596

THAT SOUNDS RATHER SCARY, AFTER MANY PEOPLE ALREADY COMPLAINED ABOUT A RISING DEBT SITUATION THAT LED TO A RATIO OF 62%.  BUT IF YOU LOOK BEHIND THE NUMBERS, YOU CAN GET A DIFFERENT LOOK OF THE REALITY.

FIRST OF ALL,  THE ACTUAL EXTRAORDINARY RISE OF THE DEBT-TO-GDP RATIO IS VERY MUCH CAUSED BY THE CORONA VIRUS. SURELY EVERY COUNTRY HAS EXPERIENCED SOME KIND OF DEBT INCREASE IN THE RECENT MONTHS.   E.G., THE U.S.A. HAS A DEBT STOCK OF 27 TRILLION DOLLARS COUNTING. https://usdebtclock.org/  WITH A DEBT-TO-GDP RATIO OF 136.78%. https://usdebtclock.org/OF THE G7 COUNTRIES, GERMANY HAS THE LOWEST DEBT-TO-GDP RATIO WITH 75%. THE G7 COUNTRIES ARE THE 7 RICHEST COUNTRIES IN THE WORLD.

NOW I HEAR SOMEONE SAYING THAT WE CANNOT COMPARE OURSELVES WITH THE RICHEST COUNTRIES IN THE WORLD. THAT IS TRUE. BUT, IT SERVES AS A GOOD COMPARISON TO SHOW THAT WE ARE NOT ALONE IN THE WORLD WITH FINANCIAL PROBLEMS DUE TO THE PANDEMIC. FURTHERMORE, IT SHOWS THAT COMPARED WITH OTHER COUNTRIES, WE ARE EVEN BETTER OFF. THE U.S.A. WILL HAVE TO MAKE A LOT OF EFFORTS TO GET OUT OF THIS MESS.

RETURNING TO GHANA, FITCH EXPECTS A STRONG REBOUND OF THE GHANAIAN ECONOMY TO 5% IN 2021. THIS, ACCORDING TO FITCH WILL BE AFTER A DROP IN GDP GROWTH TO 2% IN 2020. https://www.ghanaweb.com/GhanaHomePage/business/Ghana-s-debt-to-GDP-to-hit-76-8-after-severe-coronavirus-shock-Fitch-932596

ALREADY, THE EXPECTED DROP TO 2% GDP GROWTH AT THE END OF 2020 IS MODERATE COMPARED WITH OTHER COUNTRIES. MANY OF THEM WILL FIND THEMSELVES IN RECESSION, OR ARE ALREADY IN ONE. [RECESSION IS USUALLY DEFINED AS A COUNTRY HAVING A NEGATIVE GDP GROWTH FOR TWO CONSECUTIVE QUARTERS.] ADDITIONALLY, THE FACT THAT FITCH EXPECTS A STRONG REBOUND OF THE GHANAIAN ECONOMY SHOWS THE CONFIDENCE FITCH HAS IN IT. [AND THEY SHOULD HAVE…]

FINALLY, WE GET TO THE LAST POINT OF THIS BRIEF BLOG POST. THAT IS THE DOWNGRADING OF GHANA’S RATING FROM B TO B- IN THE MEDIUM TERM BY STANDARD AND POOR’S. [FOR THE SHORT TERM, IT SEEMS THAT THE RATING AGENCY REMAINS GHANA AT B…].

HERE, WE MUST SEE THAT GHANA IS NOT THE ONLY COUNTRY THAT SUFFERED A DOWNGRADING BY STANDARD AND POORS. IN ALL, ABOUT 80 COUNTRIES ARE AFFECTED IN THE SAME WAY. THAT SHOWS THAT THE RATINGS AGENCY PROBABLY DID NOT CONSIDER THE PANDEMIC A REASON TO ADJUST THEIR RATING OPINION. MOST OF THESE COUNTRIES ARE IN THE DEVELOPING WORLD. IT IS CLEAR THAT THE CORONA VIRUS WILL AFFECT THE DEVELOPING ECONOMIES MORE SEVERE THAN DEVELOPED ONES, BUT I THINK THE JUDGMENT OF THIS IS EVERYBODY’S GUESS.

GHANA’S DEBT-TO-GDP RATIO AND THE DOWNGRADING BY STANDARD AND POORS – SURELY A TOPIC TO HAVE ENDLESS DISCUSSIONS ABOUT. BUT I BELIEVE THAT IN THE MEDIUM TERM GHANA’S OUTLOOK WILL BE VERY POSITIVE.

STAY TUNED!

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