In a recent development, Fitch Ratings has affirmed Ghana’s credit rating at ‘RD’, signaling that the country is currently in default. The rating agency downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘RD’ from ‘C’ earlier this year, following a missed Eurobond coupon payment. Similarly, the Long-Term Local-Currency (LTLC) IDR was downgraded to ‘RD’ from ‘CCC’ due to missed payments on local-currency-denominated bonds.
Ghana has since been working with official creditors for the restructuring of its external debt under the G20 Common Framework. The authorities are seeking to restructure a substantial USD 20 billion of external debt, which includes official bilateral debt, export credit agencies-backed commercial loans, Eurobonds, and non-insured commercial loans.
To address its liquidity challenges, Ghana has secured a USD 3 billion three-year Extended Credit Facility from the IMF, with financing assurances provided by the official creditor committee. However, negotiations with authorities and private creditors are still ongoing, and solvency concerns remain critical.
Furthermore, the recent domestic debt exchange program completed in February 2023 has reduced interest payments but has not resolved all of Ghana’s fiscal woes. Interest payments still represent a significant 45% of revenue and grants on a commitment basis. Moreover, the country continues to issue short-term bills, which pose refinancing risks.
Ghana’s public sector debt is expected to reach 99% of GDP by the end of 2023, highlighting the urgency of fiscal consolidation measures. The government aims to undertake a primary fiscal adjustment of 5.1% of GDP by 2026, with a focus on revenue increases and expenditure rationalization.
In addition to fiscal challenges, the banking sector in Ghana has been significantly impacted by the debt exchange program, leading to weakened capitalization. This could further exacerbate the country’s financial stability.
While there have been some efforts to resume payments on local-currency-denominated bonds, some institutional investors are still awaiting payments. Ghana’s authorities have also announced plans to restructure LC bonds held by pension funds, which may provide some relief.
Fitch’s rating actions have also considered Environmental, Social, and Governance (ESG) factors. Ghana’s performance in political stability, rule of law, institutional quality, and control of corruption has impacted its credit profile.
Looking ahead, the resolution of the debt restructuring process and fiscal consolidation measures will be crucial for Ghana’s credit outlook. If the country can normalize relations with non-tendered securities bondholders and successfully complete the restructuring of local-currency bonds held by pension funds, it may see an upgrade in its credit rating.
However, until concrete progress is made on the debt front and solvency concerns are adequately addressed, Ghana will likely face challenges in restoring its creditworthiness. The coming months will be crucial for the country as it navigates through its debt restructuring and fiscal consolidation efforts.
