President Akufo Adoo is calling out International Rating Agencies for what he terms an ‘unfair and reckless downgrading’ of sovereign nations. Speaking at the annual general meeting of the Africa Export-Import Bank, President Akufo Addo expressed displeasure at Ghana’s downgrade amid a pandemic and global political tension.
Speaking to the negative impact of the downgrade in developing countries President Addo notes that economies have taken a nosedive as they are completely shut from the international market. The downgrades make investors wary and lax to lend to developing countries thus limiting service delivery by respective countries.
In a period that saw debt to GDP cross 80 percent, debt to revenue 50 percent, inflation 50 percent, and local currency losing over 40 percent of its value to the dollar, President Addo says the downgrades were the last nail on the economy’s coffin.
Citing the political game of cards that is attached to securing loans abroad, President Addo is calling on African leaders to build more vibrant financial solutions. “When dealing with powerful international institutions it is important to have your own powerful financial institutions.”
However, experts do not share the same blame game enthusiasm. According to Lord Mensah, an economist, blaming the rating agencies will not change anything. Further, Lord Mensah adds that the Eurobond is not a source of sustainable financing accounting. “You cannot rely on borrowing to finance your activity. The parameters of ratings have not changed. Only country-specific problems have changed but all factors remain constant.”
Taking a swipe at the government of the day, Lord Mensah accuses the government of the day of mismanaging the economy and overreliance on debt. As such, any changes in the international lending market negatively impact the economy.
The hesitation to lend to the Ghanaian government is not just in the international market but also in the local market. Interest rates in the treasury market are now up to 30 percent. Experts now say the investor community has shortened the lifespan of the investment. Following the bond restructuring, no investors are interested in bonds. In the short-term frame, we are seeing a higher yield cap. “Government is in dire need of money. The treasury bills market is sustaining the economy and investors are aware of this. As such, investors are holding out for higher interest rates for long-term yield. I foresee government restructuring on interest rates ahead of the budget.”