Fitch Ratings has lowered the Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) of Ghana to restricted default (RD) from ‘CCC’.
This action was taken due to missed payments on certain local-currency bonds issued before the domestic debt exchange programme (DDEP).
Although last month, Ghana’s LTLC IDR was upgraded to ‘CCC’ from ‘RD’ because of the successful completion of the local debt restructuring programme in February 2023, the downgrade reflects missed payments on bonds that were not tendered or held by ineligible entities for participating in the domestic debt exchange.
The government recently announced that it would resume payments on local-currency bonds issued before the domestic debt exchange. However, only coupon payments on the two-year note that matured on 20th February, 2023 and the 20-year note maturing in 2039 have been made, and the principal payment on the former note is still outstanding.
While the government has agreed on a pathway toward the settlement of the outstanding debt obligations by 28th April, 2023, Fitch is concerned about whether missed payments will be settled for all categories of holders of ‘old bonds’ or only for specific categories.
Fitch has downgraded the issue rating of five local-currency bonds issued before the debt exchange to ‘CC’ from ‘CCC’ and has withdrawn the rating on these securities due to limited information and uncertainty regarding the timely servicing of the securities issued before the domestic debt exchange.
However, Fitch has affirmed the ‘CCC’ issue rating of local-currency bonds issued on the completion date of the domestic debt exchange programme, with the first coupon payments on these bonds due in August 2023.
Despite a significant redemption reprofiling and lowered interest rates, Fitch estimates that the present value of public debt-to-GDP has only been reduced by 1% to slightly above 100% of GDP in present value terms, using the standard 5% discount rates that apply in the IMF/World Bank debt sustainability framework for low-income countries.
Fitch also noted that IMF support for Ghana will likely depend on the government’s ability to show a path toward bringing the present value of debt to 55% of GDP over the forecast horizon based on the IMF/World Bank debt sustainability analysis and the ability of official bilateral creditors to provide financing assurances in the context of the Common Framework of external debt restructuring that authorities have requested.
Fitch expects that financing assurances, which will pave the way for an IMF Board approval of the ECF arrangement and for a new debt sustainability analysis to be published, will not be provided before the end of 2Q23. Fitch will assign Ghana’s LTLC IDR based on a forward-looking assessment of its willingness and capacity to honour its local currency debt once it receives satisfactory confirmation that Ghana has settled all the missed payments.
An upgrade of the issue rating on the partially guaranteed notes could result if evidence shows that the partially-guaranteed notes will be excluded from the external debt restructuring.