Fitch Ratings has reduced the nation’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) from ‘CCC’ to ‘RD’.
This action was taken in response to late payments on some local-currency bonds issued prior to the domestic debt exchange program (DDEP).
Although Ghana’s LTLC IDR was upgraded from ‘RD’ to ‘CCC’ last month due to the successful completion of the local debt restructuring program in February 2023, the downgrade reflects missed payments on bonds that were not tendered or held by ineligible entities for participating in the domestic debt exchange.
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The government recently stated that payments on local-currency bonds issued prior to the domestic debt exchange will be resumed. However, only coupon payments on the two-year note, which matured on February 20, 2023, and the 20-year note, which matures in 2039, have been made, while the principal payment on the former note remains due.
While the government has agreed on a pathway toward the settlement of the outstanding debt obligations by 28th April 2023, Fitch is concerned about whether missed payments will be settled for all categories of holders of ‘old bonds’ or only for specific categories.
Fitch has lowered the issue rating of five local-currency bonds issued prior to the debt exchange to ‘CC’ from ‘CCC’ and withdrew the rating on these securities owing to a lack of information and concern about timely servicing of securities issued prior to the domestic debt exchange.
Fitch has, however, confirmed the ‘CCC’ issue rating of local-currency bonds issued on the completion date of the domestic debt exchange scheme, with the first coupon payments due in August 2023.
Despite significant redemption reprofiling and lower interest rates, Fitch estimates that the present value of public debt-to-GDP has only been reduced by 1% to slightly more than 100% of GDP in present value terms, using the IMF/World Bank debt sustainability framework for low-income countries’ standard 5% discount rates.
Fitch also stated that IMF support for Ghana will most likely be contingent on the government’s ability to demonstrate a path toward bringing the present value of debt to 55% of GDP over the forecast horizon based on the IMF/World Bank debt sustainability analysis, as well as the ability of official bilateral creditors to provide financing assurances in the context of the Common Framework of external debt restructuring requested by authorities.
Fitch expects that financing assurances, which will pave the way for an IMF Board approval of the ECF arrangement and for a new debt sustainability analysis to be published, will not be provided before the end of 2Q23. Fitch will assign Ghana’s LTLC IDR based on a forward-looking assessment of its willingness and capacity to honour its local currency debt once it receives satisfactory confirmation that Ghana has settled all the missed payments.
SOURCE: CITINEWS
