Moody’s changes Ghana’s outlook to negative, B3 rating affirmed

Moody's Investors Service recently affirmed the Government of Ghana's long-term local and foreign currency issuer and foreign currency senior unsecured bond ratings at B3. However, the outlook has been changed to negative from positive in light of the ongoing challenges posed by the COVID-19 pandemic. Derrick Mensah, Portfolio Manager at IC Asset Managers, provided insights into this rating decision on CNBC Africa. Mensah noted that the impact of the global health crisis on the macroeconomic situation had been largely expected, leading to the outlook downgrade. Despite the negative outlook, the retention of the B3 credit rating was seen as a positive amidst uncertain economic conditions. The Ghanaian economy, like many others, has faced uncertainties and challenges arising from the pandemic. The recent announcement by President Nana Akufo-Addo regarding a partial lockdown and the extension of certain restrictions has added to the market's uncertainties. Investors have struggled to price in the uncertainty, with many opting for caution and taking a risk-averse approach. Consumer stocks have felt the immediate impact of the lockdown, leading to declines in equity markets. However, the banking sector has exhibited some resilience due to policy responses from the central bank. The International Monetary Fund (IMF) has also provided a gloomy outlook for Ghana's economic recovery, suggesting a prolonged period of economic decline before any substantial bounce back. Mensah concurred with this assessment, foreseeing a slow and challenging recovery path for Ghana. He projected a potential 18-24 months before any meaningful recovery could be expected. The cautious approach from investors was expected to persist as market participants brace themselves for continued volatility and economic challenges. Looking ahead at the first-quarter earnings, Mensah anticipated significant hits on consumer stocks as companies in sectors such as tourism, food, and trading grapple with reduced demand and disruptions to supply chains. He projected earnings declines of between 30 to 50 percent for these companies, reflecting the impact of the pandemic on their businesses. With borders set to remain closed for the next two weeks, the movement of people is restricted, but cargo transportation is expected to continue with minimal disruptions. The closure of borders may not significantly impact trade activities in the short term, according to Mensah. Despite the challenges and uncertainties facing Ghana's economy, there remains a sense of cautious optimism regarding the country's ability to weather the storm. The government's efforts to ramp up testing, enforce public health measures, and provide support to affected sectors have been noted. However, the road to recovery is expected to be long and arduous, with stakeholders bracing for a protracted period of economic challenges. The resilience of the banking sector and the cautious approach of investors are key indicators of how Ghana is navigating through these turbulent times.