Ghana’s debt woes persist as Fitch maintains ‘Restrictive Default’ rating for both foreign and local currency debts
In a relentless battle to address its escalating debt crisis, Ghana remains ensnared in the grips of credit turmoil, with Fitch Ratings upholding the nation’s Long-Term Foreign-Currency (LTFC) and Long-Term Local-Currency (LTLC) Issuer Default Ratings (IDR) at Restrictive Default (‘RD’). The steadfast decision by Fitch comes in the wake of a tumultuous journey that has seen Ghana’s creditworthiness deteriorate significantly over the past months.
A pivotal moment in this downturn occurred on February 21, 2023, when Fitch downgraded Ghana’s LTFC IDR to ‘RD’ from ‘C,’ a consequence of the nation’s failure to meet its Eurobond coupon obligations within the grace period. This painful downgrade highlighted the severity of Ghana’s fiscal struggles, exacerbating the already precarious situation.
Nonetheless, there appears to be a glimmer of hope on the horizon, as Ghana endeavors to navigate its way out of the fiscal storm. Progress has been reported in discussions with official creditors, aiming to restructure a staggering $20 billion of external debt under the G20 Common Framework. Included in this colossal restructuring are official bilateral debt, export credit agencies-backed commercial loans, Eurobonds, and non-insured commercial loans.
The official creditor committee (OCC) has emerged as a key player in this complex restructuring endeavor. Fitch disclosed that financing assurances were extended by the OCC during its inaugural meeting on May 12, 2023, enabling the much-needed green light from the IMF board for a $3 billion three-year Extended Credit Facility.
Such a development has reignited hopes of an eventual agreement between the OCC and Ghanaian authorities by the close of 2023, potentially leading to equitable treatment for private creditors’ claims by mid-2024. According to IMF estimates, a financing inflow of $10.5 billion is deemed essential for Ghana’s economic resuscitation in the period spanning 2023-2026.
The domestic front, however, paints a slightly divergent picture. On April 21, 2023, Fitch downgraded Ghana’s LTLC IDR to ‘RD’ from ‘CCC,’ resulting from missed payments on local-currency-denominated bonds not tendered during the prior domestic debt exchange program (DDEP), completed on February 24, 2023 (commonly referred to as the ‘old bonds’).
While the Ghanaian authorities demonstrated some strides in resuming payments, particularly to individual bondholders, institutional investors remain caught in the wake of unsettled obligations. The exact timeline for the resumption of payments on these remaining ‘old bond’ obligations by the Government remains undisclosed.
Hoping to find some solace within its borders, the Government has signaled its intent to pursue debt restructuring for local currency (LC) bonds held by pension funds. Excluded from the previous DDEP, these pension funds may be offered extended maturities in exchange for higher coupon payments. Such a restructuring scheme, if completed by autumn 2023, might offer some respite to the beleaguered domestic financial landscape.
