Moody’s signals potential upgrade of Ghana’s credit rating post eurobond debt restructuring
Moody’s Investors Service has signaled a potential upgrade in Ghana’s credit rating in the wake of the country’s recent Eurobond debt exchange.
The credit rating agency says it has concluded a comprehensive review of Ghana’s long-term issuer ratings, which include the local currency rating at Caa3 and the foreign currency rating at Ca.
The anticipated upgrade is largely driven by the country’s debt restructuring efforts under the G20 common framework, initiated in December 2022.
The restructuring of local currency debt, excluding Treasury Bills, was completed in 2023, while the restructuring of foreign currency debt, which constitutes nearly half of Ghana’s total debt, has progressed significantly.
Moody’s indicated that upon completion of the restructuring, all ratings are expected to be aligned at a higher level, albeit within the Caa-rating category, considering the liquidity constraints that typically follow a default event.
The rating agency also noted that the International Monetary Fund (IMF) programme, supporting fiscal consolidation and funding access, is underpinned by Ghana’s robust institutional capacity, enabling compliance with programme conditionality. Nonetheless, Moody’s highlighted that persistently high inflation and tight monetary conditions remain significant credit challenges.
“The restructuring of foreign currency debt, which constitutes nearly half of Ghana’s total debt, has progressed significantly following announcements in June 2024 regarding a Memorandum of Understanding on official creditor debt and an agreement in principle with bondholders,” said the credit rating agency.
“Upon completion of the restructuring, all ratings are likely to be aligned at a higher level, albeit within the Caa-rating category, given the liquidity constraints typically following a default event.
“While the IMF programme supports fiscal consolidation and funding access due to Ghana’s relatively robust institutional capacity, which allows it to comply with programme conditionality, still-high inflation, and tight monetary conditions will remain key credit challenges,” it added.
The Ministry of Finance announced on June 24, 2024, the terms for restructuring $13.1 billion of Eurobond debt, which represented 21% of Ghana’s total debt as of 2023. Under this agreement, bondholders would forgo approximately $4.7 billion in principal, with no state-contingent triggers.
The restructuring efforts also included a Memorandum of Understanding signed on June 12 between Ghana’s Finance Ministry and the Official Creditor Committee to restructure $5.4 billion of official sector external debt.
The IMF in approving Ghana’s $360m this tranche under the $3bn support programme on June 28, 2024, affirmed that both restructurings align with its programme parameters, although the Official Creditor Committee has yet to confirm that the bondholder agreement offers comparable debt treatment to the MoU.
As Ghana navigates its debt restructuring processes, the anticipated credit rating upgrade from Moody’s represents a pivotal step towards stabilizing the nation’s financial outlook and enhancing investor confidence.
