Fitch signals positive rating for Ghana pending debt normalization efforts
In a move that could potentially boost investor confidence, ratings agency Fitch has hinted at assigning Ghana a positive rating, contingent upon the country’s successful normalization of relations with a substantial majority of non-tendered securities bondholders and completion of the restructuring of local-currency bonds held by pension funds.
The London-based firm has outlined its decision-making process, stating that Ghana’s Long-Term Local-Currency Issuer Default Rating (LTLC IDR) will be subject to a forward-looking assessment of the country’s willingness and capacity to honor its local-currency debt once the specified conditions are met.
Furthermore, Fitch has underscored the significance of Ghana reaching an agreement with private creditors on the restructuring of its foreign-currency-denominated debt. Following the completion of this restructuring process in line with the Common Framework official creditors’ claims treatment, Ghana’s Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) will also be evaluated based on the country’s ability and intent to fulfill its foreign-currency obligations.
However, Fitch did not shy away from cautionary language, highlighting that Ghana faces potential downside risks. Notably, failure to honor the first coupon payments on bonds due in August 2023 could lead to a downgrade of the country’s issue-ratings on denominated bonds issued on the completion date of the domestic debt exchange.
At present, Fitch’s proprietary Sovereign Rating Model (SRM) has assigned Ghana a score equivalent to a rating of ‘CCC+’ on the Long-Term Foreign-Currency IDR scale. Nevertheless, it’s essential to note that the agency’s sovereign rating committee has abstained from using the SRM and Qualitative Overlay (QO) to explain the current ratings. Instead, ratings of ‘CCC+’ and below are determined based on established rating definitions.
The SRM, a distinctive multiple regression rating model, relies on 18 variables encompassing three-year centred averages, along with one year of forecasts, to generate a score equivalent to a Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR).
As the global financial community keeps a watchful eye on Ghana’s debt management efforts, the country’s authorities must navigate the path towards debt normalization and fulfillment of obligations to investors in order to secure a potentially favorable rating outcome from Fitch.
Any missteps along the way could result in a disappointing outcome, further impacting Ghana’s access to the international capital markets and its overall economic prospects.
