Assessing the fiscal impact of COVID-19 on Ghana’s economy

Ghana, known for its high economic growth rates, faced a significant downturn in 2020 due to the impact of the COVID-19 pandemic. The country's credit profile, rated at B3 with a negative outlook by Moody's, reflects elevated debt levels, weak debt affordability, and revenue underperformance exacerbated by the pandemic. Kelvin Dalrymple, Vice President and Sovereign Analyst at Moody's, highlighted the challenges faced by Ghana's economy in a recent interview. The pandemic led to a sharp decline in economic growth, from over 6% per annum to 1.9%, as well as a substantial increase in the fiscal deficit to 7% of GDP, causing the debt to GDP ratio to rise to 76.1%. Despite these challenges, the country managed to maintain positive growth, supported by strong gold exports and stable cocoa prices. Dalrymple emphasized that debt affordability remains a major concern for Ghana, with interest payments accounting for a high percentage of revenue, primarily driven by significant Eurobond issuances in recent years. The negative outlook on Ghana's credit rating reflects the risks posed by the pandemic, requiring a track record of prudent debt management and improved debt servicing capacity to move towards a stable outlook. Moody's expects Ghana's economy to grow by 4.1% in 2021, driven by higher commodity prices and active non-oil sectors. However, the country's growth projections are more conservative compared to those of the IMF. Ghana's credit rating of B3 places it in a similar category as other African countries like Nigeria, with room for improvement in comparison to higher-rated peers like B2-rated nations in the region. Despite the challenges, Ghana's stable governance and fiscal discipline have been highlighted as strengths by Moody's, providing a foundation for recovery post-pandemic.