Moody’s downgrades Ghana’s credit rating from Caa2 to Ca …but says country’s outlook stable

Moody’s, an international rating agency has downgraded Ghana’s long-term issuer credit ratings to Ca from Caa2.

Ghana has been downgraded deeper into junk territory by Moody’s Investors Service on the likelihood that private creditors will incur steep losses during the government’s planned debt restructuring, Bloomberg reported.

“The country’s credit rating was slashed by two levels to Ca, the second-lowest score at Moody’s, according to a Tuesday statement. That puts Ghana on par with Sri Lanka, which is in default,” Bloomberg reported.

“The Ca rating reflects Moody’s expectation that private creditors will likely incur substantial losses in the restructuring of both local and foreign currency debts planned by the government as part of its 2023 budget proposed to Parliament on 24 November 2022″, Moody’s said in a statement on its website.

 “Given Ghana’s high government debt burden and the debt structure, it is likely there will be substantial losses on both categories of debt in order for the government to meaningfully improve debt sustainability,” it said.

Meanwhile, Ghana’s outlook was changed to stable as the restructuring will likely happen in co-ordination with creditors and under a program with the International Monetary Fund, according to Moody’s.

“The stable outlook balances Moody’s assumption that the debt restructuring will happen in co-ordination with creditors and under the umbrella of a funding programme with the International Monetary Fund  against the potential for a less orderly form of default that could result in higher losses for private-sector creditors,” Moody’s said.

In addition, Moody’s, said it has also downgraded Ghana’s senior unsecured debt ratings to Ca from Caa2 and the senior unsecured MTN programme ratings to (P)Ca from (P)Caa2, along with downgrading to Caa3 from Caa1 the rating of Ghana’s bond enhanced by a partial guarantee from the International Development Association (IDA, Aaa stable), concluding the concurrent reviews for downgrade. The latter reflects a blended expected loss consistent with a one-notch uplift on the issuer rating.

“Finally, Moody’s has lowered Ghana’s local currency (LC) and foreign currency (FC) country ceilings to respectively Caa1 and Caa2, from B2 and B3, mirroring the downgrade of the sovereign ratings by two notches”, it stressed.

“Non-diversifiable risks are captured in a LC ceiling three notches above the sovereign rating, taking into account relatively predictable institutions and government actions, limited domestic political risk, and low geopolitical risk; balanced against a large government footprint in the economy and the financial system and external imbalances. The FC country ceiling one notch below the LC country ceiling reflects constraints on capital account openness and very weak policy effectiveness against authorities’ history of providing access to foreign exchange”, it added.

Ghana’s Eurobonds have been among the worst performers in emerging markets since Bloomberg reported the plans for the local debt recast in September, handing investors losses of almost 12 per cent in that period, according to data compiled from a Bloomberg index, Citi newsroom, reported.

It said the nation’s debt-exchange program will replace existing terms and exchange debts with longer tenors at cheaper rates, said Abena Osei Asare, a Deputy Minister of Finance. The plans come after an analysis of debt sustainability showed the nation faces a high risk of distress.

Fitch Ratings in its rating of the country in the course of the year scored the nation at CC, two notches above default and S&P Global Ratings also assigned it CCC+, seven levels into junk.

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