Moody’s Investors Service has downgraded Ghana further into junk territory due to the likelihood that private creditors will suffer significant losses during the government’s planned debt restructuring.
According to a statement released on Tuesday, the country’s credit rating was downgraded by two levels to Ca, the second-lowest score at Moody’s. Ghana is now on the same level as Sri Lanka, which is in default.
The downgrade is as a result of plans in Ghana’s proposed government budget for 2023 to restructure both domestic and foreign debts.
“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,” analysts Lucie Villa and Marie Diro wrote in the statement.
At the same time, Moody’s upgraded Ghana’s outlook to stable, citing the likelihood that the restructuring will take place in collaboration with creditors and under a program with the International Monetary Fund.
“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.”
Last month, the West African country formed a committee to begin talks with domestic bondholders to restructure its local-currency debt.
Ghana’s Eurobonds have been among the worst performers in emerging markets since Bloomberg reported plans for the local debt recast in September, costing investors nearly 12% in that time, according to data compiled from a Bloomberg index.
According to Abena Osei Asare, deputy minister of finance, the country’s debt-exchange program will replace existing terms and exchange debts for longer tenors at lower rates. The plans are the result of a debt sustainability analysis that revealed the country is at high risk of financial distress.
Fitch Ratings assigned the country a CC rating, two notches above default. S&P Global Ratings assigned it CCC+, which is seven levels below junk.
