Moody’s Investors Service (Moody’s) has upgraded the Government of Ghana’s local currency long-term issuer rating to Caa3 from Ca and maintained the stable outlook.
Concurrently, Moody’s has upgraded the local currency senior unsecured MTN programme rating to (P)Caa3 from (P)Ca.
Following the completion of the government’s main local currency debt restructuring, Moody’s assessment of future expected losses on local currency debt has diminished.
Through this exchange, Ghana has achieved a degree of fiscal relief and is therefore unlikely to seek and obtain another similar-scale debt restructuring in the short to medium term from the same creditors given the damage it would cause to its financial sector.
Moreover, official sector support has started, with the IMF’s first disbursement under its programme with the country.
However, the Caa3 rating captures elevated redefault risk, which remains tangible until Ghana’s local currency debt that has not been restructured is settled and until the foreign currency debt is restructured.
The stable outlook reflects balanced downside and upside risks. On the one hand, a protracted period of negotiations over the restructuring of the government’s foreign currency debt and increasing constraints on access to local currency funding are downside risks that could lead to another local currency debt restructuring with larger losses than implied by the Caa3 rating.
On the other hand, the foreign currency debt restructuring could go relatively smoothly while Ghana’s fiscal and external adjustment could proceed with the support of the official sector, including the IMF.
The foreign currency long-term issuer rating and senior unsecured rating are Ca. The foreign currency senior unsecured MTN rating and the backed senior unsecured rating are respectively (P)Ca and Caa3.
Concomitantly, Moody’s revised up by one notch Ghana’s local currency (LC) and foreign currency (FC) country ceilings to respectively B3 and Caa1, from Caa1 and Caa2, mirroring the upgrade of the sovereign local currency ratings by one notch. Non-diversifiable risks are captured in a LC 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 FC country ceiling one notch below the LC country ceiling reflects constraints on capital account openness and very weak policy effectiveness against authorities’ history of providing access to foreign exchange.
The one-notch upgrade of the local currency rating is driven by the completion of the government’s main local currency debt restructuring, which has diminished Moody’s assessment of potential future losses for creditors on local currency debt in the event of default.
Ghana has already achieved a degree of fiscal relief through its recent local currency debt restructuring and is therefore unlikely to seek or obtain another similar-scale debt restructuring from the same domestic creditors once again in the short to medium term.
With the bond exchange completed earlier this year, through which 55% of outstanding local currency debt was exchanged according to Moody’s estimates, the government has achieved non-negligible savings for 2023 and 2024 in terms of interest payments in the vicinity of 1% of GDP annually. Debt refinancing needs have also diminished for these years.