Moody’s rates credit profile of Ghana B3, negative outlook

Ghana for a while now has been noted as being high risk of debt burden due to the country’s incessant borrowing and growing debt profile.

Moody’s in its latest credit analysis of the country issued this week and copied to, has rated Ghana’s credit profile B3, negative outlook. According to the credit rating company, the rating reflects the country’s elevated debt burden and weak debt affordability, track record of revenue underperformance relative to targets, and elevated exposure to international capital flow reversal, all worsened by the coronavirus pandemic.

Moody’s notes that these factors are however, offset by improved credit conditions including positive economic growth in the face of the global slowdown, stable prices for commodities such as gold and cocoa, more secure power supply to support growth, the ramping up of oil and gas production, which contributes to improved current-account dynamics, and the smoothing of the debt-maturity profile.

It states that access to more reliable power supply will bolster the government’s industrialisation strategy toward higher value-added products, including the agro-processing sector, particularly cocoa, where Ghana and Côte d’Ivoire (Ba3 stable) are increasing cooperation as the world’s largest cocoa producers.

“Ghana also has good governance metrics as highlighted by the World Bank (i.e. Government Effectiveness, Rule of Law, and Control of Corruption) that place them above B-rated peers The negative outlook reflects the rising risks that the pandemic poses to Ghana’s funding and debt service,” it said.

Commenting, ,” Kelvin Dalrymple, Vice president – Senior Credit Officer – at Moody’s and co-author of the report said, “The negative outlook reflects the rising risks that the pandemic poses to Ghana’s funding and debt servicing due to its exposure to shocks from a high dependence on external financing. That said, our outlook could turn stable if the government limits the potential increase in its funding needs or confidently show it will be able to get sufficient funding at moderate costs, when needed.”

Moody’s also said Ghana is particularly exposed to such shocks because of its high reliance on external financing, both in local and foreign currency, and very weak debt affordability.

Moody’s however, indicated that it would likely change the outlook to stable if it concludes that financing pressures were abating, either through increasing evidence that the government is able to limit the increase in its funding needs or confidence that it will be able to secure sufficient funding at moderate costs.

“A stabilisation and reduction in Ghana’s debt-service ratio would ease refinancing risks and support an improvement in its debt-affordability metrics. The implementation of measures that would arrest the rise in direct and contingent debt and provide confidence that the debt burden will fall would also support a return to a stable outlook.,” Moody’s said.

According to Moody’s, ultimately, as current pressures dissipate, the improving trends evident prior to the coronavirus shock would likely emerge. This credit analysis elaborates on Ghana’s credit profile in terms of economic strength, institutions and governance strength, fiscal strength and susceptibility to event risk, the four main analytic factors in its Sovereign Ratings Methodology.

By Emmanuel K. Dogbevi

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