Rating agency, Moody's has downgraded Ghana’s long-term issuer and senior unsecured debt ratings to CAA2 from CAA1 and placed the ratings on review for downgrade.
The rating downgrade to CAA2, it said, reflects the recent macroeconomic deterioration, further heightening the government's liquidity and debt sustainability difficulties and increasing the risk of default.
This follows the recent downgrade of Ghana’s credit rating to ‘CC’ from ‘CCC’ by Fitch.
Despite Ghana's tightening of monetary policy in response to the global price shock, it said inflation continues to rise from high levels and the currency has been under very significant pressure, adding, “combined, a sharp rise in interest rates, high inflation and a rapidly weakening currency exacerbate the government's debt challenges”.
"Without external support, the government's policy levers to arrest a worsening macroeconomic backdrop and heavier debt burden are extremely limited; the government's small revenue base, largely and increasingly absorbed by interest payments, further intensifies the policy dilemma between competing objectives, including servicing debt while meeting essential social needs. As a result, the risk of an eventual default has increased", it pointed out.
The initiation of the review for downgrade is prompted by the ongoing negotiations between the government and the IMF over a funding programme, it underscored, adding, "it may include a condition for debt restructuring to ensure debt sustainability.
"Such a restructuring would likely be considered a distressed exchange and thereby a default under the rating agency's definition.
"The review will evaluate the likelihood of a debt restructuring being a prerequisite to secure sufficient and durable financing from official sources to avert a fiscal and balance of payments crisis that is already unfolding".
Concurrent to the rating downgrade, Moody's has also downgraded Ghana's bond enhanced by a partial guarantee from the International Development Association (IDA, Aaa stable) to CAA1 from B3, reflecting a blended expected loss consistent with a one-notch uplift on the issuer rating.
The rating has also been placed on review for downgrade given the review initiated on all unsecured debt ratings of the government.
Finally, Moody's has lowered Ghana's local currency (LC) and foreign currency (FC) country ceilings to respectively B2 and B3, from B1 and B2.
Non-diversifiable risks are captured in a LC ceiling three notches above the sovereign rating, taking into account relatively predictable institutions and government actions, limited domestic political risk, and low geopolitical risk; balanced against a large government footprint in the economy and the financial system and external imbalances.
The FC country ceiling one notch below the LC country ceiling reflects constraints on capital account openness and fiscal policy effectiveness against robust foreign exchange reserve buffers and average monetary policy effectiveness.
In February 2022, Moody’s downgraded Ghana’s long-term issuer and senior unsecured debt ratings to CAA1 from B3 and changed the economic outlook to stable from negative.
The downgrade to Caa1 reflected the increasingly difficult task the government faces in addressing its intertwined liquidity and debt challenges.
Latest Stories
-
Herman Suede set to release ‘How Dare You’ on April 22
15 mins -
Heal KATH: Kuapa Kokoo, Association of Garages donate 120k to support project
26 mins -
KNUST signs MOU with Valco Trust Fund, Bekwai Municipal Hospital to build student hostel
33 mins -
The influence Ronaldo has on people, Cadman Yamoah will have same on the next generation – Coach Goodwin
1 hour -
Gender Advocate Emelia Naa Ayeley Aryee Wins prestigious Merck Foundation Awards
2 hours -
South Africa bursary scandal suspects granted bail
3 hours -
Ecobank successfully repays $500m Eurobond due April 18
3 hours -
Re: Doe Adjaho, Torgbui Samlafo IV, call for Unity among Paramountcies in Anlo
3 hours -
Extortion and kidnap – a deadly journey across Mexico into the US
3 hours -
Rihanna says fashion has helped her personal ‘rediscovery’ after having children
3 hours -
Development Bank Ghana targets GH¢1bn funding for commercial banks in 2024
3 hours -
Shatta Movement apologises to Ghana Society of the Physically Disabled after backlash
4 hours -
Sammy Gyamfi writes: Tema-Mpakadan Railway Project; A railway line to nowhere
5 hours -
Bright Simons: Is the World Bank saving or harming Ghana?
5 hours -
CAF Cup: RS Berkane banned from entering Algeria because of a map of Morocco with its Sahara
5 hours