Fitch sets Ghana outlook to negative over ballooning deficit

Fitch said Friday it had revised its outlook on Ghana's credit rating from stable to negative due to a ballooning deficit despite strong growth in the country seen as a model democracy in West Africa.

Meanwhile, visiting World Bank officials said they had discussed the deficit with Ghanaian authorities and were confident the problem could be addressed.

Fitch maintained its long-term foreign and local currency issuer default rating at B+ despite revising the outlook to negative and affirmed its short-term issuer default rating at B.

Fitch cited "the severe deterioration in the fiscal deficit to 12.1 percent of GDP in the run up to the December 2012 election" as a main factor in the decision.

"This is nearly double the government's target of 6.7 percent set in July's supplementary budget and well above the initial budget of 4.8 percent agreed at the start of the year. The deterioration suggests a serious loss of fiscal control and reduced credibility."

Ghana has seen strong growth in recent years, including more than 14 percent in 2011 after the start of commercial oil production and an estimated eight percent for 2012.

Fitch said it assumed GDP growth would remain in excess of seven percent and that the budget deficit would begin to be reduced since presidential elections won by incumbent John Dramani Mahama are now completed.

"Over the medium term, the new oil and gas sector has the potential to boost Ghana's economic output, diversify the economy and strengthen the country's public and external balance sheets," Fitch said.

"All these factors should eventually strengthen Ghana's creditworthiness."

World Bank Vice President for Africa Makhtar Diop said during a visit to Accra on Friday that the bank was concerned with the burgeoning deficit, but he was confident high commodity prices would help the government reduce it.

Shanta Devarajan, the World Bank's chief economist for Africa, said Ghana was capable of reining in the deficit.

"A deficit of 12 percent of GDP is of concern as the authorities have already mentioned, and I think the encouraging thing is that once you realise it's of concern, that's when you start putting together a programme to address it," he said.

"I'm confident, as Ghana has done in he past, that they will be able to bring that deficit down."

Ghana, already a major producer of gold and cocoa, began commercial oil production in late 2010. The nation of some 25 million people has held a string of successful elections since returning to democracy in 1992.