Credit ratings agency, S&P Global Ratings, has downgraded Ghana’s debt further into speculative territory, lowering the country’s foreign and local currency sovereign ratings to junk from B-/B to CCC+/C with a negative outlook.

S&P Global Ratings explained that the review of the country’s economic outlook to negative reflects “Ghana’s limited commercial financing options, and constrained external and fiscal buffers”.

S&P highlighted that the Covid-19 pandemic and the Russian invasion of Ukraine has complicated Ghana’s fiscal and external imbalances.

“Demand for foreign currency has been driven higher by several factors, including nonresident outflows from domestic government bond markets, dividend payments to foreign investors and higher costs for refined petroleum products”.
S&P Global Ratings

The CCC+ is the worst since 2003

S&P added that Ghana has also been affected by lack of access to the Eurobond markets which were mainly as a result of earlier downgrades by major rating agencies.

“Local authorities have passed a levy on electronic transactions and legislation to tighten exemptions on tax payments including for VAT, among other moves. While these changes could improve the tax take going forward, the situation remains challenging, and over the first half of 2022, the fiscal deficit has exceeded the government’s ambitious target”.
S&P Global Ratings

Before the current downgrade, S&P affirmed Ghana’s ratings in February, as Moody’s downgraded the African nation to Caa1 with a stable outlook.

In February 2022, S&P affirmed Ghana’s Long and short-term foreign and local currency ratings at B- and maintained the outlook at Stable.

It identified some constraints that prevented an upgrade of Ghana Sovereign ratings which included: the continuous uncertainty surrounding fiscal correction, including the delayed approval of the e-levy bill to give assurances to the 2022 budget.

Other concerns such as high-interest cost and greater dependence on domestic financing sources, given the worsening external financing conditions facing Ghana were also highlighted.

Government revises initially projected expenditure

Government, in the mid-year budget, revised the initially projected expenditure for 2022 of GH₵135.6 billion to GH₵133.8 billion. This revision mainly impacted Government’s Budget for Goods and Services as well as Grants to Other Government Units which are projected to reduce by 35% relative to the initial Budget (from GH₵9.1 billion to GH₵5.8 billion) and 12% (from GH₵26.8 billion to GH₵23.6 billion), respectively.

Interest payments are however, expected to increase from GH₵37.4 billion to GH₵41.3 billion, accounting for 31% of the total revised projected expenditure and absorbing 43% of revised budgeted revenue and grants for 2022.

The higher interest cost is largely attributable to increases in the country’s debt stock which has hit a concerning level, spurred by the depreciation of the Cedi against major global trading currencies.

Ghana’s total debt stood at GH₵393.4 billion (78.3% of GDP as at 30 June 2022), with about 51.7% of this position being financed by external debt. Despite the country’s debt stock in dollar terms reducing by 7.2% from USD58.6 billion as at June 2021 to USD54.4 billion as at June 2022, the significant depreciation of the Cedi by about 16% over the period to June 2022 has contributed significantly to the rising debt position.

However, investment bank, IC Securities assessed that Ghana will not default in its Eurobond repayment.

According to IC Securities, a $750.0 million loan from the African Export-Import Bank, the $1.3 billion cocoa syndicated loan and the windfall from petroleum revenue will help shore up the country’s reserves, and prevent any default.

Ghana seeks support from IMF

Ghana has already begun discussions with the International Monetary Fund for economic support. An economic programme is expected to be created in this regard to return the country into a stable territory.

A team from the Fund that visited the country in July 2022 assured that it will continue to monitor the challenging economic and social situation in Ghana closely in the coming weeks and engage authorities in the formulation of Enhanced Domestic Programme that could be supported by a Fund arrangement.