Fitch to downgrade Ghana to very deep junk status; Country’s Issuer Default Rating now ‘C’

Rating agency, Fitch, has given an indication of a further downgrade of Ghana’s credit rating to very deeper junk status.

This is coming after it downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘C’ on December 21, 2022 from ‘CC’ as well as the issue ratings on outstanding foreign-currency debt.

It has also downgraded the issue rating on Ghana’s partially-guaranteed $1 billion notes maturing in 2030 to ‘CC’ from ‘B-‘.

Fitch said the suspension of interest payments on selected external debt, including Eurobonds, commercial term loans, and most bilateral debt is the beginning of a sovereign default process.

“On 20 December, the government announced plans to restructure its external sovereign debt, which will add to the pressure on banks’ capital. Details have yet to be announced but payments on selected external debt, including Eurobonds, commercial term loans, and most bilateral debt, have been suspended. Fitch views this as the beginning of a sovereign default process”

US-based, S&P Global Rating also lowered the sovereign rating on Ghana to ‘selective default’ from CC, a day after the country announced it would suspend its debt payments to some external creditors including holders of Eurobonds.

Fitch explained further that the downgrade of Ghana’s LTFC IDR reflects the government’s announcement of a suspension of payments on sovereign external debt, which it views as the beginning of a sovereign default process.

Fitch downgraded Ghana’s LT IDRs to ‘CC’ from ‘CCC’ on September 23, 2022 to indicate the increasing probability of a default event as a result of increasing pressure on external finances and in anticipation that an International Monetray Fund-supported programme would require some form of debt restructuring.

“Ghana’s already-high debt servicing burden and constrained access to finance both worsened during the successive shocks of the coronavirus pandemic and the Ukraine-Russia war, leading the government to seek IMF support in July 2022”.

Partially guaranteed notes included in restructuring

Fitch has also downgraded the issue rating on Ghana’s US dollar notes due October 2030 to ‘CC’ from ‘B’.

The notes benefit from a partial credit guarantee (PCG) backed by the International Development Association of the World Bank for scheduled debt service payments up to 40% of the original principal.

Fitch stated that it had assigned a multiple-notch uplift to the notes to reflect its view that the PCG reduces the bonds’ potential for default and increases the possible recovery in the event of issuer default.