Moody’s downgrades Ghana to deeper junk Ca with stable outlook, as government plans to restructure debts

On Thursday November 24, 2022, the Ghana government read its 2023 budget. In the budget the government which is struggling with a high debt burden announced it would restructure both local and foreign currencies debt.

Then on November 29, five days after the budget, the ratings agency, Moody’s downgraded Ghana deeper from junk Caa2 to Ca, a slash of two levels, which is the second lowest score by Moody’s.

According to Moody’s the Ca rating reflects its 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 the 2023 budget.

“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,” Moody’s said in a statement.

The stable outlook balances its assumption that the debt restructuring will happen in coordination with creditors and under the umbrella of a funding programme with the IMF against the potential for a less orderly form of default that could result in higher losses for private-sector creditors, it said.

Moody’s also downgraded Ghana’s senior unsecured debt ratings to Ca from Caa2 and the senior unsecured MTN programme ratings to (P)Ca from (P)Caa2, along with downgrading to Caa3 from Caa1 the rating of Ghana’s bond enhanced by a partial guarantee from the International Development Association (IDA, Aaa stable), concluding the concurrent reviews for downgrade, noting that the latter reflects a blended expected loss consistent with a one-notch uplift on the issuer rating.

Additionally, Moody’s lowered Ghana’s local currency (LC) and foreign currency (FC) country ceilings to respectively Caa1 and Caa2, from B2 and B3, mirroring the downgrade of the sovereign ratings by two notches.

“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,” it added.

The current which hurriedly exited an IMF programme started by its predecessor is currently in talks with the IMF for another programme to salvage the economy, buffeted by the COVID-19 and the Ukraine-Russia war, and further exacerbated by poor economic decisions of a government on a spending spree for political expediencies.

By Emmanuel K Dogbevi
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