Fitch Ratings has reduced the nation’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to restricted default (RD) from ‘CCC’.
This action was taken in response to missed payments on certain local-currency bonds issued prior to the domestic debt exchange programme (DDEP).
Although Ghana’s LTLC IDR was upgraded to ‘CCC’ from ‘RD’ last month due to 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 payments on local-currency bonds issued prior to the domestic debt exchange would be resumed. However, only coupon payments on the two-year note, which matured on February 20, 2023, and the 20-year note, which matures in 2039, have been made, and the principal payment on the former note remains outstanding.
While the government has agreed on a path to settle outstanding debt obligations by April 28th, 2023, Fitch is concerned about whether missed payments will be settled for all categories of ‘old bonds’ holders or only for specific categories.
Fitch has downgraded the issue rating of five local-currency bonds issued prior to the debt exchange to ‘CC’ from ‘CCC’ and withdrawn the rating on these securities due to a lack of information and uncertainty about timely servicing of securities issued prior to the domestic debt exchange.
Fitch has, however, confirmed the ‘CCC’ issue rating of local-currency bonds issued on the completion date of the domestic debt exchange programme, with the first coupon payments due in August 2023.
Despite significant redemption reprofiling and lower interest rates, Fitch estimates that the present value of public debt-to-GDP has only been reduced by 1% to slightly more than 100% of GDP in present value terms, using the IMF/World Bank debt sustainability framework for low-income countries’ standard 5% discount rates.
Fitch also stated that IMF support for Ghana will most likely be contingent on the government’s ability to demonstrate a path towards bringing the present value of debt to 55% of GDP over the forecast horizon based on the IMF/World Bank debt sustainability analysis, as well as the ability of official bilateral creditors to provide financing assurances in the context of the Common Framework of external debt restructuring requested by authorities.
Fitch anticipates that financing assurances, which will pave the way for IMF Board approval of the ECF arrangement and the publication of a new debt sustainability analysis, will not be provided before the end of 2Q23. After receiving satisfactory confirmation that Ghana has settled all missed payments, Fitch will assign Ghana’s LTLC IDR based on a forward-looking assessment of its willingness and capacity to honour its local currency debt.
If evidence indicates that the partially guaranteed notes will be excluded from the external debt restructuring, the issue rating on the partially guaranteed notes may be upgraded.
