Ghana got a good grade?

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OPE, it’s a new week! Guess what I’m seeing in the headlines? Something about S&P giving Ghana a grade. “S&P upgrades Ghana’s credit rating from ‘CCC+/C’ to ‘B-/B”. I mean, I know a country does not go to school, but what does it mean for me?  

No, no, it’s not grading in school; this is a different type of grading. Let me explain

What is an S&P rating?

Mmmm, S&P! Now imagine a friend or a colleague wants to borrow money from you. You don’t just give the money to the person, right? You first somewhat evaluate the person and decide whether this person who wants to borrow money from you can pay back. “Is he or she working?”, “Do they have a stable job?”, “Is money at home?”. All these questions and more come to mind because you are lending the money. It’s not a gift. Sometimes this evaluation happens automatically because you know the person. Do you get the picture? That is what an S&P rating is all about, just that they do it a different way. 

So now look at something. You know, governments and big companies sometimes borrow money, right? They sometimes use banks to facilitate this process, but that is besides the point. The problem is that how can you tell if the government or a big company will pay you back? You can’t tell just by looking at them. This is where S&P (Standard & Poor’s) comes in. They answer the question, “Can the government or company pay me back?” Instead of spending time getting to know your borrower, they put them on a scale for you. 

Their rating scale goes from AAA (they will definitely pay you) down to D (forget it). The rating “D” means there is a high chance that you might not get your money back.

What does it mean for Ghana?

Now, Ghana going from CCC+ to a B- is great news. Although the Bs and Cs mean that it is risky lending money to Ghana, B- is an improvement from CCC+. It’s like moving from “very risky” to “moderately risky“. This is especially good news because it signals to the world that Ghana is managing its finances better. When you, as an international investor, see a B- rating instead of CCC+, you tend to think: “Okay, Ghana’s getting its house in order.”

It means that it won’t be nearly as hard as before when we need to borrow money for our national budget. More people will be willing to lend to us because they are confident we will be able to pay them back.  If you, as a Ghanaian, also understand this rating, it means that you become more willing to invest in Ghana. Monetarily, of course.