Ghana’s economy rated in Very High Credit Risk
Fitch downgrades Ghana’s economy to ‘B-‘
Finance Ministry rejects Moody’s latest ratings
Ghana’s economy has been downgraded again by another international rating agency, Moody’s Investor Services.
This follows a previous downgrade by Fitch in January this year, downgrading Ghana’s economy to ‘B-’ from an earlier ‘B’.
Fitch said Ghana had lost access to international capital markets which could hamper the country’s ability to meet its medium-term financing needs.
However, the latest downgrade released by Moody’s on Friday, February 4, 2022, rated Ghana’s long-term issuer and senior unsecured debt ratings from B3 to Caa1.
Moody’s cited the country’s downgrade was influenced by liquidity and debt challenges as well as weak revenue generation constraints.
The agency also noted that Ghana’s government has not been able to afford itself the opportunity to be flexible with its expenditure.
But what does the latest rating by Moody’s mean for Ghana’s economy?
GhanaWeb in this article zooms in on the rating scale as provided by Moody’s:
Credit risks are calculated based on the borrower’s overall ability to repay a loan per the original terms of the loan’s agreement. A number of factors are however looked at to determine the credit risk and worthiness of the borrower.
Lenders often look at the five Cs which are; credit history, capacity to repay, capital access, the loan’s conditions, and associated collateral.
For a country’s economy to be fully stable, it must attain the ‘Lowest Level of Credit Risk’ which according to Moody’s places it on the ‘Aaa’ rating.
This means financial obligations rated Aaa are judged to be of the highest quality, with minimal credit risk in honouring financial obligations.
Countries in the ‘Very Low Credit Risk’ section which rates; Aa1, Aa2 and Aa3 mean they often honour financial obligations and are judged to be of high quality.
In the ‘Low Credit Risk’ section, Moody’s scale rates a country’s economy at; A1, A2 and A3 while that of ‘Moderate Credit Risk’ is; Baa1, Baa2 and Baa3.
This simply means financial obligations are considered upper-medium grade while the latter’s rating ‘Baa1’ is subject to moderate credit risk in making debt payments.
Moodys’ however considers them [‘Baa1’] as medium grade and may possess certain speculative characteristics to clear debts.
Meanwhile, Moody’s also places a country’s with ‘Substantial Credit Risk’ in Ba1, Ba2 and Ba3 meaning, financial obligations have speculative elements to clear debts.
Additionally, ‘High Credit Risk’ nations are given B1, B2 and B3 ratings meaning they are considered rather speculative in honouring financial obligations.
Finally, for nations heading toward economic distress, Moody’s places them in the ‘Very High Credit Risk’ section and subsequently rates them as Caa1, Caa2, Caa3.
This means they are judged to be of poor standing in honouring debt payments or financial obligations.
Source: Moody’s