After upgrading Ghana and signaling renewed confidence in the country’s economic recovery efforts, Fitch Ratings has cautioned that the gains could easily be reversed if some factors gain ground.
The warning forms part of the agency’s latest ratings assessment on Ghana, where Fitch highlighted key vulnerabilities that could trigger another downgrade despite the recent positive outlook on the economy.
The caution, despite the upgrade, underscores that Ghana’s economy is showing signs of recovery after years of severe fiscal and debt distress, but vulnerabilities remain.
According to Fitch Ratings, three factors remain very critical to maintaining the current upgrade and improving on it. It is therefore calling on the country to keep tabs on these factors to avoid setbacks.
Rising Government Spending Could Hurt Ghana’s Progress
One of the biggest risks identified by Fitch is a deterioration in Ghana’s fiscal performance. In simple terms, the agency is warning that if government spending rises excessively without matching revenue growth, the country could lose the hard-earned gains that contributed to the recent upgrade.
Fitch specifically pointed to the risk of Ghana failing to maintain a strong primary fiscal surplus, which is the amount the government retains after excluding interest payments on debt.
This means that if authorities begin spending far more than expected, especially in election-related commitments, public sector compensation, subsidies, or unplanned expenditures, the country’s financial position could weaken again.
The agency also stressed the importance of continuing public financial management reforms, which are aimed at improving spending controls, reducing waste, and ensuring greater transparency in the use of public funds.
“A weaker fiscal performance, evidenced by a lower-than-anticipated primary fiscal surplus, for instance, due to markedly higher spending and failure to continue to implement public financial management reforms,” Fitch noted.
Weak External Buffers Could Increase Economic Vulnerability
Fitch also warned that Ghana must continue building strong external buffers or risk another downgrade.
External buffers mainly refer to foreign exchange reserves. They are dollars and other foreign currencies held by the Bank of Ghana to support the economy and stabilize the cedi during periods of shocks.
According to Fitch, adverse global developments, especially worsening commodity prices or unfavorable terms of trade, could weaken Ghana’s reserve position.
As a commodity-dependent economy heavily reliant on gold, cocoa, and oil exports, Ghana remains vulnerable to global price swings. A sharp decline in export earnings could reduce foreign exchange inflows and place pressure on the cedi.
The warning comes even as Ghana has recently benefited from improved reserve accumulation, stronger remittance inflows, and relative currency stability.
However, Fitch believes sustaining these gains will require continued export growth, prudent management of imports, and stronger investor confidence.
If reserves weaken significantly, the country could face renewed exchange rate volatility, imported inflation, and rising costs of goods and services.
Higher Debt Servicing Costs Remain a Major Threat
Another major concern raised by Fitch is the possibility of rising debt servicing costs. The agency warned that Ghana’s interest payments could increase sharply if inflation rises beyond expectations.
This is particularly important because higher inflation often forces interest rates upward, making it more expensive for government to borrow and refinance existing debt.
Fitch specifically cited the risk of an increase in the country’s interest-to-revenue ratio, a measure showing how much government revenue is consumed by debt interest payments.
When a large share of revenue goes into servicing debt, less money becomes available for critical sectors such as healthcare, education, roads, and social interventions.
Although Ghana has made progress through its debt restructuring programme, Fitch’s latest warning suggests the country’s debt sustainability remains fragile and highly dependent on maintaining low inflation and prudent borrowing.
Fitch cautioned that, “A rise in debt service costs, evidenced by an increased interest/revenue ratio, for instance, due to higher-than-anticipated inflation” could lead to a downgrade.
The Bottomline
The latest upgrade from Fitch was widely interpreted as a sign that Ghana’s economic reforms and fiscal consolidation efforts are beginning to restore international confidence after the country’s recent debt crisis.
The agency’s decision reflected improving macroeconomic stability, stronger fiscal performance, easing inflationary pressures, and progress under the IMF-supported programme.
However, the latest rating sensitivities show that Fitch still sees considerable risks ahead.
Any major policy slippages could quickly undermine the progress that contributed to the recent upgrade and potentially push the country back toward another downgrade cycle.
