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Fitch revises outlook on Ghana to Stable: Affirms at 'B'

Fitch said the latest review was driven by the nation's progress at stabilising the economy and the commitment of the government to reduce the budget deficit.

"Ghana is making progress in stabilising its economy after its recent crisis period, with an expected revival in GDP growth, declining inflation, a more stable currency and increasing foreign exchange reserves. Furthermore Fitch judges that the new government will make progress in reducing the budget deficit after the election-related slippage in 2016, albeit with continued downside risks," Fitch said in a statement on Friday.

The ratings agency said it expect economic growth to improve to 6% in 2017 from an estimated 3.6% in 2016.

"CPI inflation fell to 12.9% year on year in March, from a peak of 19% in March 2016. The cedi has recovered to 4.2/USD, after depreciating to 4.7/USD in early March. The improvement in the macroeconomic environment has allowed the Bank of Ghana to cut its policy interest rate to 23.5% from a peak of 26% in 2016. Further, rising oil production and the benefits from macroeconomic stability will support Ghana's medium-term growth potential above 6%, a key rating strength," the statement noted.

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On the budget deficit, Fitch forecasts the 2017 budget deficit to narrow to 7.5% of GDP on a cash basis, and further to 5.5% in 2018.

"The government's 2017 deficit forecast of 6.5% of GDP is based on an expected increase in tax revenues and a cut to capital expenditures. Fitch believes that the expected increase in tax revenues will be difficult to realise, as the budget contains significant tax cuts aimed at boosting the business climate. Fitch notes that Ghana has historically underperformed its budgeted revenue projections," it said.

Touching on expenditure, it said: "interest costs will continue to exert upward pressure. Ghana's interest costs are 32% of its general government revenues, a level well above the 'B' median of 9%."

"A lack of transparency and accountability within the line ministries has persistently led to substantial off-budget spending and the accumulation of arrears. Successful implementation of the measures outlined in the Public Financial Management Act, 2016 would help control expenditure and keep spending focused on the policy priorities outlined in the budget."

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