<\/p>\n
Ken Ofori-Atta<\/strong><\/p>\n Fitch\u00a0<\/strong>Ratings downgraded Ghana\u2019s long-term local- and foreign-currency issuer default ratings (IDRs) to \u2018CC\u2019, from \u2018CCC\u2019, last Friday.<\/p>\n The latest downgrade comes barely a month after the rating agency reduced the country\u2019s credit rating from B- to CCC.<\/p>\n It indicated that the agency typically does not assign outlooks to issuers with a rating of \u2018CCC\u2019 or below.<\/p>\n Drivers<\/strong><\/p>\n Fitch Ratings explained that the downgrade reflects the increased likelihood that Ghana will pursue a debt restructuring given mounting financing stress, with surging interest costs on domestic debt and a prolonged lack of access to Eurobond markets.<\/p>\n \u201cThere is a high likelihood that the IMF 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 GDP,\u201d it argued.<\/p>\n The agency added, \u201cWe believe this will be in the form of a debt exchange and will qualify as a distressed debt exchange under our criteria. The government has not confirmed or denied press reports that Ghana is preparing to negotiate a restructuring.\u201d<\/p>\n It said interest costs on external debt are lower than for domestic debt and near-term external debt amortisations appear manageable.<\/p>\n It pointed out, however, that it believed there could be an incentive to spread a debt restructuring burden across domestic and external creditors, \u201cand therefore do not have a strong basis to differentiate between Foreign- and Local-Currency ratings at this time.\u201d<\/p>\n High\u00a0Debt Service<\/strong><\/p>\n Fitch noted that interest costs reached 47.5% of revenue in 2021 and 54% in first half of 2022, intimating that interest payments on domestic debt comprise around 75% of total interest costs.<\/p>\n \u201cThis reflects high yields on domestic debt, which have climbed following a 34% year on year spike in inflation as at August 2022 and monetary tightening, with the Bank of Ghana hiking its policy rate to 22.0%, from 14.5% in February.<\/p>\n Yields on the 91-day treasury bill reached 27.0% in August, up from 12.5% in August 2021, and 10-year yields have spiked to above 35% in September, from around 20% in first quarter of 2022, the agency said.<\/p>\n Limited Access<\/strong><\/p>\n It stated that\u00a0the agency expected 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\u2019s regular source of external financing.<\/p>\n The government obtained a USD750 million term loan from African Export-Import Bank (BBB\/Stable) this year and USD250 million in syndicated loans from global commercial banks.<\/p>\n It can also use its sinking fund. We estimate Ghana faces around USD3 billion of external debt service costs in 2023, including amortisation and interest, the agency suggested.<\/p>\n Reserve\u00a0Pressure<\/strong><\/p>\n According to Fitch,\u00a0it expects persistent downward reserve pressure in the absence of an IMF programme.<\/p>\n \u201cOfficial reserve assets fell to USD7.3 billion in June, from USD9.8 billion in 2021 and gross international reserves, excluding oil funds and encumbered assets, totalled USD7.1 billion in March, the latest figure available.<\/p>\n \u201cThe exchange rate has weakened by 40% year-to-date against the US dollar, reaching GH\u00a210:USD1 in September, potentially made worse by the drop in non-resident investment in local-currency debt.<\/p>\n \u201cNon-resident holdings were GH\u00a223.1 billion at end-August, or 4% of Fitch-forecast 2022 GDP,\u201d it added.<\/p>\n IMF Programme<\/strong><\/p>\n It said the reverse of the government\u2019s \u201clong-standing position against seeking IMF support in July 2022\u201d was positive, noting, \u201cWe believe a deal with the IMF is likely within the next six months.\u201d<\/p>\n \u201cGhana has indicated it could request USD2 billion-3 billion and the programme could unlock budget support from other official lenders. However, we believe a restructuring will be deemed necessary, with local-currency debt treatment potentially included prior to IMF approval, as the IMF is unable to provide financing where it assesses a country\u2019s debt to be unsustainable.<\/p>\n \u201cThe most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shock to market access and high debt servicing costs. Interest costs have risen substantially since then,\u201d the agency stated.<\/p>\n By Ernest Kofi Adu<\/strong><\/p>\n \n\t<\/div>\n","protected":false},"excerpt":{"rendered":" Ken Ofori-Atta Fitch\u00a0Ratings downgraded Ghana\u2019s long-term local- and foreign-currency issuer default ratings (IDRs) to \u2018CC\u2019, from \u2018CCC\u2019, last Friday. The latest downgrade comes barely a month after the rating agency reduced the country\u2019s credit rating from B- to CCC. It indicated that the agency typically does not assign outlooks to issuers with a rating of […]<\/p>\n","protected":false},"author":1,"featured_media":1120513,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[72],"tags":[4336,2145,85],"class_list":["post-1211809","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-downgrades","tag-fitch","tag-ghana"],"_links":{"self":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts\/1211809","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/comments?post=1211809"}],"version-history":[{"count":0,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts\/1211809\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/media?parent=1211809"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/categories?post=1211809"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/tags?post=1211809"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}