Moody's Downgrades Ghana Ratings Again
Nana Akufo-Addo, Ghana President

Moody’s Downgrades Ghana Ratings Again

Moody’s Investors Service has downgraded the Government of Ghana’s long-term issuer ratings to Ca from Caa2 and changed the outlook to stable. The recent downgrade is the second time in the last two months.

Accra is currently seeking a lifeline from the International Monetary Fund, IMF, to help its tighter financing condition. MarketForces Africa reports that IMF mission announced visit to the country from December 1.

In the rating note, Moody’s indicates that its latest announcement on Ghana concludes the review for downgrade that was initiated at the time of the 30 September 2022 rating action.

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

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, the rating firm said.

Meanwhile, the rating note added that the stable outlook balances Moody’s assumption that the debt restructuring will happen in coordination with creditors and under the umbrella of a funding program with the IMF against the potential for a less orderly form of default that could result in higher losses for private-sector creditors.

Also, 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.

Non-diversifiable risks are captured in a local currency 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 foreign currency country ceiling one notch below the local currency ceiling reflects constraints on capital account openness and very weak policy effectiveness against authorities’ history of providing access to foreign exchange.

Moody’s expects that the restructuring of local and foreign currencies debts announced by the government on 24 November 2022 as part of its budget proposal for 2023 will likely result in significant losses for private creditors. READ: Moody’s Downgrades Ghana, Bonds over Liquidity, Debt Challenges

The government has been grappling with increasingly high and costly debt for more than a year now, leaving increasingly limited policy levers to arrest the negative spiral between high inflation and elevated interest rates, depreciating local currency and rising debt.

As such, restructuring debt has progressively appeared as a necessary condition to secure debt sustainability.

Moreover, given the structure of government debt, equally split between foreign and local currency, its elevated level – forecast at 104% of GDP by end of this year- and cost, substantial losses to creditors as part of the debt exchange are likely in Moody’s view.

Analysts estimate that interest payments should consume 58% of revenue in 2022. # Moody’s Downgrades Ghana Ratings Again

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