Fitch Ratings, a leading provider of credit ratings, commentary and research for global capital markets has downgraded Ghana’s Long-Term (LT) Local Currency (LC) Issuer Default Rating (IDR) to Restricted Default (RD) from ‘C’.

The credit rating agency, in its press release disclosed that the issue ratings on local-currency bonds issued domestically have also been downgraded to Default (D) from ‘C’.

Fitch attributed the downgrade to the decision by government to embark on the debt exchange programme and the recent default on local bonds that matured on February 6, 2023, including another one which is due for payment this week.

“The downgrade of Ghana’s local-currency denominated debt follows the completion of a domestic debt exchange offer by the Republic of Ghana. This transaction is an element of the recovery programme for which the government is seeking the support of the IMF. On Dec. 12, 2022, Ghana and the IMF reached a Staff-Level Agreement on a three-year arrangement under the Extended Credit Facility (ECF) of about USD3 billion.”
Fitch Ratings

In Fitch’s view, Ghana’s debt exchange constitutes a distressed debt exchange under the agency’s criteria, given that the exchange is needed to avoid a traditional payment default.

According to Fitch’s sovereign rating criteria, a ‘RD’ rating is consequently assigned to the Long-Term Local Currency Issuer Default Rating. Among the 67 eligible bonds that could be tendered, six are rated by Fitch. “A ‘D’ rating has been assigned to these six bonds,” it stated.

“In a press release issued on Feb. 14, 2023, authorities announced that coupon payments and maturing principals would be honoured in line with Government fiscal commitments.

“This announcement does not clarify yet when the payment will be made to holders who opted out of the domestic debt exchange. In particular, it does not clarify whether a principal payment will be made before the expiration of the grace period for this specific issue. This security is one of the six issues that have been downgraded to ‘D’.”
Fitch Ratings

Foreign-Currency Debt Not Affected

Fitch in its previous ratings downgraded the Long-Term Foreign Currency Issuer Default Ratings (IDR) to ‘C’ from ‘CC’ on Dec. 21, 2022 following the government’s announcement of a suspension of payments on selected external debt.

However, Ghana subsequently asked official creditors for a restructuring of its external debt under the G20 Common Framework.

Fitch further assured that once Ghana reaches an agreement with private creditors on the restructuring of its foreign currency-denominated debt and completes the restructuring process following the Common Framework official creditors’ claims treatment, the country will be assigned a Long-Term Foreign-Currency Issuer Default Rating based on a forward-looking assessment of its willingness and capacity to honour its foreign-currency debt.

A Eurobond coupon payment, due on Jan. 18, 2023, has not been honoured. Hence, Fitch has affirmed the LT FC IDR at ‘C’ but will downgrade it to ‘RD’ after the end of the grace period for this coupon payment that expires on Feb. 17, 2023.

Partially Guaranteed Notes Not Affected

Fitch downgraded the issue rating on Ghana’s U.S. dollar-denominated notes due October 2030 to ‘CC’ from ‘B-‘ on Dec. 21, 2022.

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

Fitch 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.

The ‘CC’ rating for the partially guaranteed U.S. dollar-denominated notes due October 2030 has been affirmed.

ESG – Governance

Ghana, as communicated in Fitch’s report, has an ESG Relevance Score (RS) of ‘5’ for both Political Stability and Rights, as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption.

These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch proprietary Sovereign Rating Model.

Fitch reckoned that Ghana has a medium WBGI ranking at 50.8, reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

Commenting on Ghana’s willingness to service and repay debt which is highly relevant to Fitch ratings and a key rating driver with a high weight, the current rating action reflects Fitch’s view that Ghana is in default.