In a recent assessment, the UK-based rating agency Fitch reaffirmed Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘RD’ (Restricted Default) and Long-Term Local-Currency (LTLC) IDR at ‘CCC’.
This rating reflects the country’s ongoing financial difficulties, particularly its default on outstanding Eurobonds following a missed coupon payment in February 2023, which remains unresolved despite the expiration of the grace period.
Fitch’s decision to maintain the ‘RD’ rating for Ghana’s LTFC IDR underscores the seriousness of the country’s debt situation. The agency typically does not assign Outlooks to sovereigns with ratings of ‘CCC+’ or below, indicating a high level of uncertainty regarding Ghana’s ability to meet its debt obligations.
This rating implies that Ghana is in a distressed situation, particularly in terms of its foreign-currency obligations.
Despite these challenges, Fitch noted some positive developments in Ghana’s debt restructuring efforts. The country has made progress under the Common Framework, a G20 initiative aimed at providing debt relief to countries facing severe debt vulnerabilities.
In January 2024, Ghana reached an agreement on the main terms of official bilateral debt treatment with its official creditor committee. This was a significant step, as it laid the groundwork for a more comprehensive restructuring plan.
The subsequent memorandum of understanding, formalized in June 2024, further clarified the financial and non-financial terms of this agreement.
Crucial Aspect of Ghana’s Debt Restructuring
A crucial aspect of Ghana’s debt restructuring is the handling of its Eurobond debt. In June 2024, Ghana and a significant portion of its bondholders, who collectively own or control approximately 40% of the outstanding US$3 billion in Eurobonds reached an agreement in principle (AIP) on restructuring terms.
This agreement aligns with the International Monetary Fund’s (IMF) debt sustainability thresholds and adheres to the Common Framework’s comparability of treatment clause, which ensures equitable treatment of all creditors.
The path to this agreement has not been straightforward. An earlier AIP, reached in January 2024, was rejected by the IMF for not meeting its debt sustainability thresholds.
The IMF’s rejection highlighted the challenges Ghana faces in balancing the need for debt relief with the requirements of international financial institutions. However, the revised AIP indicates a more balanced approach, satisfying both Ghana’s need for debt relief and the IMF’s criteria for sustainable debt levels.
The next steps In Ghana’s debt restructuring process include the imminent launch of a consent solicitation, with the goal of completing the Eurobond exchange by September 2024.
This exchange will involve the replacement of 15 outstanding Eurobonds with new bonds. Investors will have two options: the ‘disco’ option, which includes a nominal haircut of 37% on all claims (including past due interests), and restructuring of the remaining claims into bonds maturing between 2026 and 2035 with coupon rates ranging from 0% to 6%.
This restructuring aims to provide some relief to Ghana while ensuring a viable path forward for the country’s fiscal management.
Despite these efforts, challenges remain. Fitch notes that Ghana’s foreign-currency non-bond commercial debt also requires restructuring on comparable terms. The completion of this external debt restructuring is anticipated by the end of 2024, though the complexity of negotiations and the potential
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