Fitch Ratings downgrades Ghana to B Negative; Outlook Negative

The ratings agency, Fitch has downgraded Ghana to B Negative with Negative Outlook.  The agency announced it has downgraded Ghana’s Long-Term Foreign Currency Issuer Default Rating (IDR) to B Negative from B, and the Outlook is Negative.

According to Fitch, the downgrade of Ghana’s IDRs and Negative Outlook reflect the country’s or sovereign’s loss of access to international capital markets in the second half of 2021, following a pandemic-related surge in government debt, noting that this comes in the context of uncertainty about the government’s ability to stabilise debt and against a backdrop of tightening global financing conditions.

“In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high interest expenditure to revenue ratio,” it said.

Fitch states that Ghana’s effective loss of market access to international bond markets increases risks to its ability to meet medium-term financing needs, which in the view of Fitch, Ghana has sufficient liquidity and other available external financing options to cover near-term debt servicing without Eurobond issuance.

“However, there is a risk that non-resident investors in the local bond market could sell their holdings, particularly if confidence in the government’s fiscal consolidation strategy further weakens, placing downward pressure on its reserves,” it added.

According to Fitch, it assumes that Ghana will be unable to issue on international capital markets in 2022 and prospects for doing so in 2023 are uncertain, noting that Ghana’s international reserve position has become highly reliant on annual Eurobond issuance.

“Moreover, as of July 2021, non-resident investors held just below 20 per cent ($5.8 billion) of Ghana’s outstanding domestic government debt. While the maturity of these holdings is long-term, an outflow would put additional downward pressure on Ghana’s reserves,” it asserts.

“We forecast that Ghana will face approximately $2.7 billion (3.3 per cent of GDP) in sovereign external interest service and amortisation payments in 2022. We believe that the government can meet its external debt servicing without market access given its reserves, which we estimate at $7.9 billion at end-2021 (3.2 months of current external payments). Reserves were bolstered by $3 billion in Eurobonds in second quarter of 2021, which helped the government to meet its approximately $3.5 billion (4.7 per cent of GDP) in sovereign external debt servicing costs last year, and by the $1 billion IMF SDR allocations,” it said.

Accordingly, Fitch forecasts that the general government fiscal cash deficit will narrow to 9.1 per cent of GDP in 2022 from 15.1 per cent in 2020 and 12.5 per cent in 2021 (including 3 per cent of GDP in domestic arrears clearance and payments related to the state-owned energy sector).

“The 2022 deficit would still be more than twice the 2022 ‘B’ median of 4.6 per cent and risk to public finances remain high. The government envisages a deficit (including financial and energy sector support) of 7.4 per cent in 2022 and 5.5 per cent in 2023, with a fall to below the legal deficit ceiling of 5 per cent in 2024,” the agency said.