Fitch further downgrades Ghana to ‘CC’

Rating agency, Fitch, has downgraded Ghana’s Long-Term Local – and Foreign-Currency Issuer Default Ratings (IDRs) to ‘CC’ or further junk status, from ‘CCC’.

This is the second time in 2022 that it has downgraded Ghana’s credit worthiness.

The downgrade, it said, reflected the increased likelihood that Ghana would pursue a debt restructuring given mounting financing stress, with surging interest costs on domestic debt and a prolonged lack of access to Eurobond markets.

“There is a high likelihood that the International Monetary Fund support programme currently being negotiated will require some form of debt treatment due to the climbing interest costs and structurally low revenue as a percentage of Gross Domestic Product,” it said in a statement.

“We believe this will be in the form of a debt exchange and will qualify as a distressed debt exchange under our criteria”, it explained.

The government has not confirmed or denied press reports that Ghana is preparing to negotiate a restructuring.

The rating agency added interest costs on external debt are lower than that of domestic debt and near-term external debt amortisations appear manageable.

“However, we believe there could be an incentive to spread a debt restructuring burden across domestic and external creditors and therefore do not have a strong basis to differentiate between Foreign- and Local-Currency ratings at this time,” said.

The country’s interest costs reached 47.5 per cent of revenue in 2021 and 54 per cent in the first half of 2022. Interest payments on domestic debt also hovered around 75% of total interest costs.

This, Fitch said, reflected high yields on domestic debt, which have climbed following a 34 per cent year-on-year spike in inflation as of August 2022 and monetary tightening, with the Bank of Ghana hiking its policy rate to 22.0 per cent, from 14.5 per cent in February 2022.

Again, yields on the 91-day Treasury bill reached 27.0 per cent in August 2022, up from 12.5 per cent in August 2021, whilst 10-year yields have spiked to above 35 per cent in September 2022, from around 20 per cent in quarter one 2022.

Fitch also said it expects external financing access to stay limited until at least an IMF programme is agreed, as Ghana is likely to remain locked out of Eurobond markets, which had been the country’s regular source of external financing.

The government obtained a $750 million term loan from African Export-Import Bank (BBB/Stable this year and $250 million in syndicated loans from global commercial banks.

“We estimate Ghana faces around $3 billion of external debt service costs in 2023, including amortisation and interest”, it added.

Reacting to the news of the downgrade on Joy FM’s Newsfile programme on Saturday, Mr Sampson Akligoh, Director, Financial Sector Division, Ministry of Finance said the ministry was poised to lessen the impact of the intended financial restructuring on the stakeholders in the country.

He said the plight of affected parties would be prioritised as the government engages with the International Monetary Fund (IMF) on the approach to the debt readjustment.

 “No decision will be taken without external conversations… It is important that nothing is done to compromise the banking system and destroy people’s confidence in the banking sector as a whole,” he said.


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