Fitch Ratings has downgraded Ghana’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to ‘RD’ from ‘CCC’.

In addition, Fitch subsequently withdrawn the issue ratings on five local-currency bonds issued prior to the domestic debt exchange.

Fitch has affirmed the issue rating of local-currency bonds issued on the completion date of the domestic debt exchange at ‘CCC.’ Fitch, meanwhile, affirmed Ghana’s Long-Term Foreign-Currency (LTFC) IDR at ‘RD’.

Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

Fitch has withdrawn the ratings of five local currency-denominated bonds issued by the Republic of Ghana prior to the domestic debt exchange programme as they are no longer considered by Fitch to be relevant to the agency’s coverage because Fitch no longer rates any local-currency bonds issued prior to the domestic debt exchange.

Missed payments on some of the local-currency bonds issued prior to the domestic debt exchange could affect one or more of these five previously rated bonds. These five bonds are ISIN no. GHGGOG044744, GHGGOG066150, GHGGOG043563, GHGGOG065475, and GHGGOG044751.

Key Rating Drivers

Missed Local-Currency Debt Payment: The downgrade of Ghana’s LTLC IDR to ‘RD’ reflects the missed payments on some local-currency-denominated bonds that were not tendered or that are held by entities not eligible for participating in the domestic debt exchange.

The Republic of Ghana announced it was resuming payments on local-currency bonds issued prior to the domestic debt exchange (the ‘old bonds’) on 13th March 2023 to bondholders who were either ineligible or did not participate in the domestic debt exchange. However, the authorities have subsequently acknowledged that only the coupon payments on the two-year note that matured on 20th February 2023 and the 20-year note maturing in 2039 had been made. The principal payment on the former note has not been made.

Uncertainty Regarding Clearing of Missed Payments: Following a meeting with representatives of individual bondholders and pension funds, the government announced having reached an agreement on a pathway towards the settlement of the outstanding debt obligations by 28th April 2023. In Fitch’s view, this announcement does not clarify whether missed payments will be settled to all categories of holders of ‘old bonds’ or only to these two categories.

According to Fitch, 35 payments, whether principal or coupon, were due on the outstanding ‘old bonds’ between 20th January 2023 and 20th April 2023. Fitch has downgraded to ‘CC’ from ‘CCC’ the issue rating of five local-currency bonds issued prior to the debt exchange and has subsequently withdrawn the rating on these securities due to the limited information and uncertainty regarding the timely servicing of the securities issued prior to the domestic debt exchange.

New Local-Currency Bonds Affirmed: Fitch has affirmed the ‘CCC’ issue rating of local-currency bonds issued on the completion date of the domestic debt exchange programme (the “new bonds”) that was assigned on 22nd March 2023. The first coupon payments on the new bonds are due in August 2023.

Solvency Concerns Remain Critical: The domestic debt exchange has increased the debt-to-GDP ratio by 0.6pp with payment-in-kind coupons corresponding to an increase in the face value of the new bonds compared with the face value of tendered bonds.

Despite a substantial redemption re-profiling and significantly lowered interest rates, Fitch estimates that the present value of public debt-to-GDP has been reduced by only 1pp to slightly above 100% of GDP (in present value terms) using the standard 5% discount rates that applies in the IMF/World Bank debt sustainability framework for low-income countries.

IMF Support for Ghana

IMF support for Ghana will likely depend on the government’s ability to show a path towards bringing the present value of debt to 55% of GDP over the forecast horizon on the basis of the IMF/World Bank debt sustainability analysis.

Also, the ability of official bilateral creditors to provide financing assurances in the context of the Common Framework external debt restructuring that authorities have requested. Although discussion has started among some official creditors, the official creditor committee, responsible for providing the financing assurances, has not been created yet.

Fitch does not expect the provision of financing assurances, which will pave the way for an IMF Board approval of the ECF arrangement and for a new debt sustainability analysis to be published, before end of 2nd quarter of 2023.