Ghana to opt for IMF financing if liquidity strains mounts – Fitch Ratings
International credit rating agency, Fitch Ratings, says Ghana will have no other choice than to opt for an IMF financing should the country’s liquidity or financing needs continue to increase.
According to Fitch Ratings, despite the government’s resolve to not go back to the IMF and pursue a regular IMF programme due to the conditionalities to be imposed on the country coupled with debt restructuring programmes to be undertaken which ultimately sends signals of the country’s struggle to service its debts to investors, it [Fitch Ratings] believes Ghana going back to the IMF would not entail a debt restructuring programme.
Adding that an IMF support at this time would rather bolster investor confidence, and could help Ghana regain access to international debt markets given that Ghana’s effective loss of access to international markets increases risks to its ability to meet medium-term financing needs.
“We believe that macroeconomic stresses and pressures on liquidity would probably intensify if Ghana remains unable to issue and does not seek timely support from the IMF,” noted Fitch.
Fitch notes that, the medium-term outlook for Ghana’s finances remains challenging as the country’s problems have been exacerbated by the Covid-19 pandemic.
Revenue, the agency asserts, remains structurally low with very high interest costs thereby projecting general government interest expense at almost 47% of revenue in 2022 which is well above the median for ‘B’ rated sovereigns of 11%.
According to Fitch, government’s current fiscal consolidation strategy offers a path to debt sustainability, but the country’s gradual pace of deficit reduction leaves it vulnerable to slippage risks.
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“This was reflected by our revision of the Outlook on the sovereign rating to Negative, from Stable, when we affirmed the rating at ‘B’ in June 2021. An insufficient pace of consolidation, failing to rebuild investor confidence, could result in a downgrade of the sovereign rating,” noted Fitch.
We estimate Ghana’s external debt-servicing costs will fall to USD2.2 billion in 2022, from USD3.2 billion in 2021, but forecast that a widening current-account deficit, combined with private debt payments, will mean a gross external financing requirement of USD7.3 billion.
Consequently, external liquidity could become a source of increased credit stress if international capital markets remain too expensive for Ghana to issue in 2022.
We believe that macroeconomic stresses and pressures on liquidity would probably intensify if Ghana remains unable to issue and does not seek timely support from the IMF.
Around 20% of local-currency sovereign debt is held by non-residents, and under such a scenario these investors could lose confidence and sell down their holdings. This could put downward pressure on the currency and force up the government’s borrowing costs.
“We forecast the deficit, on a cash basis, to narrow to 7.7% of GDP in 2023 from 14% in 2020, with the general government debt/GDP ratio continuing to rise through 2022-2023, before plateauing in subsequent years below 90%,” added Fitch.
