Fitch says IMF deal poses tough challenge for Ghana

International credit rating house, Fitch said on Friday that meeting the targets set in the program by the International Monetary Fund (IMF) poses a tough challenge for the government of Ghana.

"Meeting the ambitious fiscal consolidation targets, will be challenging ahead of elections in 2016," the rating house said in a release.

Ghana and the IMF announced a staff level agreement on Thursday, which is awaiting the approval of the IMF board by early April.

Fitch believed that the three-year program expected to be worth 940 million U.S Dollars in balance of payment support will provide an impetus for donors to re-engage with Ghana, providing much needed foreign currency.

It added that the focus on three areas: "restraining and prioritizing public expenditure, increasing tax collection and strengthening the effectiveness of the central bank's monetary policy" clearly identified Ghana's key sovereign credit weaknesses; and successful implementation would improve fiscal discipline, help to restore macroeconomic stability and support the currency.

"Demonstrable commitment to implementing the program over its life could therefore be positive for Ghana's sovereign rating," Fitch stated.

It however considered the IMF's budget deficit target of 7.5 percent of Gross Domestic Product (GDP) in 2015 from 9.5 percent in 2014, as ambitious.

The government's own fiscal deficit target announced in the 2015 budget statement was 6.5 percent and reflects the impact of lower oil prices and weaker growth, but Fitch says an 8.0 percent deficit target for 2015 was more realistic.

It also projected that considering the deepening electricity crisis, which could drag growth lower, and the likely pressure that the upcoming elections will exert on spending, a 3.5 percent deficit target projected by the IMF for 2015 was too optimistic, pointing out the renewed pressure on the local cedi currency.

The agency did not do any new rating of the West African country, but explained: "The Negative Outlook on Ghana's 'B' sovereign rating reflects the risks to external financing capacity and the challenge and cost of financing the deficit. Increased external financing pressures would put further downward pressure on the rating."

It however noted that "an IMF program should reduce external vulnerability and support reserve accumulation, helped by a narrowing of the current account deficit due to import compression. "

"Donors who withheld around 200 million dollars in grants in 2014 will likely re-engage and the presence of the IMF will unlock access to cheaper concessional financing," Fitch hopes.

When this happens, the rating agency projects that it should reduce finance costs and bring in dollars, while the recent successful three-year bond which saw over 70 percent foreign participation would herald a renewed investor interest in the country.

Meanwhile, yields narrowed for the second time in a row on Friday on the benchmark 91-Day Treasury Bills (TBs) issued here by the Bank of Ghana. Endi