Fitch Ratings-Hong Kong -10 Aug 2022:
Fitch Ratings has downgraded Ghana’s Long-Term Foreign Currency (LTFC) Issuer Default Rating (1DR) to ‘CCC° from ‘B-, Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC” or below.
A full list of rating actions is below.
Key Rating Drivers
Increasing Possibility of Debt Restructuring
The downgrade reflects deterioration of Ghana’s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity.
In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022.
According to Fitch Ratings, the government has requested support from the IMF, which is likely to lead to additional financing
from the IMF and other multilateral lenders. However, the government’s high interest costs and structurally low revenue as a percentage of GDP have increased the likelihood that IMF Support would
necessitate some form of debt treatment, although this is not our main scenario.
The high interest burden on local-currency debt also means that the inclusion of a domestic debt treatment cannot be ruled out.
IMF Programme Pending
In July 2022, the authorities reversed a long-standing position against seeking IMF support. Fitch believes that a deal with the IMF is likely within the next six months.
Fitch Ratings estimates that a programme could disburse as much as USD3 billion and unlock budget support from other multilateral lenders.
However, the timing of such a deal is uncertain and would be dependent on the government’s ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics.
The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs.
Tight External Debt Servicing Schedule
Fitch estimates that Ghana faces USD2.75 billion of external debt servicing in 2022, including amortisation and interest, and USD2.8 billion in 2023.
Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government.
Fitch Ratings explained that, in 2022, they expect that the government will meet its external debt obligations, in part, through a combination of a USD750 million term loan from the African Export-Import Bank (BBB), USD250 million in syndicated loans from international commercial banks, and up to USD200 million from the