Credit rating firm Moody’s says Ghana will find it more expensive to borrow funds to run its economy due to a decline in its revenues and an increase in the interest rates it pays on debts.

The credit rating agency placed the West African country on B3 with a negative outlook, saying the country has high exposure to external financing.

“The negative outlook reflects the rising risks that the pandemic poses to Ghana’s funding and debt servicing due to its exposure to shocks from a high dependence on external financing,” said Kelvin Dalrymple, Vice President – Senior Credit Officer, at Moody’s.

According to Moody’s, the challenge now for Ghana is to implement an austere budget by limiting spending or find cheaper loans to finance the deficit left by its dip in earnings.

“That said, our outlook could turn stable if the government limits the potential increase in its funding needs or confidently show it will be able to get sufficient funding at moderate costs, when needed,” Mr Dalrymple explained.

Ghana’s economy, valued at almost $70 billion, experienced two-quarters of the drop in its gross domestic product in Q2 and Q3. It deepened by 3.2 per cent in the second quarter and 1.1 per cent in the next.

The COVID-19-induced contractions are considered a departure from the country’s leap of 6.5 per cent in 2019. 

The Ghanaian economy, said Moody’s, was more diversified than Nigeria’s oil-dependent one and could rebound faster if it reduced its exposure to foreign borrowing.

“Debt affordability remains Ghana’s main credit constraint and continued to deteriorate in 2020, driven by both the declining revenue share and a higher interest bill, reflecting greater recourse to borrowing to fund spending,” Moody’s said.

It noted that with funding from gold, petroleum, and a thriving service industry, Ghana tried to keep its debt to GDP ratio at a single-digit 7 per cent. The World Bank estimated that the pandemic increased this ratio to a double-digit figure of over 11 per cent in 2020.

On the other hand, Nigeria has seen its borrowing scale the 21 per cent mark compared to its GDP value, according to Moody’s.