Fitch Maintains Neutral Outlook for Ghana

Fitch Ratings has retained its ‘neutral’ sector outlook for 2024 across most emerging-market regions, including Ghana.

This perspective is shaped by a balance of moderately weaker economic growth and persistent strains on public finances against lower inflation and somewhat easing financial conditions. Notably, the Middle East and North Africa (MENA) region has an outlook of ‘deteriorating’, reflecting unique challenges that set it apart from other regions.

The economy for emerging markets in 2024 appears to be a mixed bag. On one hand, economic growth is expected to be moderately weaker, influenced by a variety of factors including geopolitical risks and global financial conditions.

Countries like Ghana are experiencing strains on public finances, which complicates their economic recovery and development plans. These strains are due to a combination of debt servicing pressures, budget deficits, and the need for increased public spending to support growth and social programs.

Lower Inflation

On the positive side, inflation rates are expected to be lower in 2024 across many emerging markets, offering some relief to both consumers and policymakers. Lower inflation can enhance purchasing power and provide a more stable economic environment, which is crucial for investment and economic planning.

Additionally, there are signs of easing financial conditions, which may facilitate access to capital markets and reduce the cost of borrowing for these countries. This could be particularly beneficial for nations like Ghana that rely on external financing to fund their development projects.

Despite these positive aspects, significant risks remain. Fitch highlights several geopolitical risks that could impact the economic outlook for emerging markets.

The ongoing wars in Ukraine and the Middle East, the strategic rivalry between the US and China, and the trend towards more protectionist trade and industrial policies all pose potential threats. These factors contribute to an unpredictable global financing environment, which could adversely affect emerging markets’ ability to secure necessary funding.

One of the critical risks mentioned by Fitch is the potential for setbacks in the US disinflation path. If inflation in the US does not decline as expected, it could lead to tighter monetary policies, including higher interest rates. This scenario could increase borrowing costs globally, making it more challenging for emerging markets to service their debts and access new financing.

Rating Outlooks

Fitch’s neutral sector outlook aligns broadly with its rating outlooks for emerging markets. Currently, there are 11 ratings with positive outlooks and six with negative outlooks within the emerging market portfolio.

The net positive position of +5 marks an improvement from +1 at the end of 2023. However, this positive net position still represents only 6% of Fitch’s rated emerging-market portfolio, indicating a cautious optimism.

Fitch’s report also addresses key questions from investors about specific countries and regions, including China, India, Pakistan, and others. In Asia, tourism remains a vital area of interest, particularly as countries recover from the impacts of the COVID-19 pandemic. For countries like Mexico, Argentina, and Ecuador, economic stability and policy continuity are crucial factors for investors.

In Eastern Europe and Central Asia, countries like Bulgaria, Kazakhstan, and Uzbekistan are navigating a complex economic landscape shaped by regional dynamics and external influences. The Gulf Cooperation Council (GCC) countries continue to deal with the effects of fluctuating oil prices and the need for economic diversification.

Kenya and other African nations are focusing on addressing structural issues and enhancing economic resilience. The Common Framework for Debt Treatments, endorsed by the G20, is also a significant topic of discussion, particularly for countries facing high debt levels and looking for sustainable solutions.

Fitch’s neutral outlook for emerging markets in 2024 reflects a complex interplay of factors. While there are challenges, including weaker economic growth and public finance strains, there is some level of hope.