IMF Negotiation; Ghanaians Woes Deepen As Bloomberg Drops Latest Sad News On Ghana Again

Fitch, an international rating agency, may further reduce Ghana’s creditworthiness status from RD to CC.

According to a Bloomberg report, Fitch sees Ghana’s debt default as more than 50% likely.

According to the report, the current CC rating “means that default is probable, with a greater than 50% chance.”

Jan Friederich, Head of EMEA Sovereign Ratings, stated that if talks with the IMF result in debt restructuring, the country risks a further downgrade.

According to Friederich, “if a debt restructuring is part of the agreement with the IMF, then, in terms of default risk, that will supersede any benefit from the financing support that Ghana might get from the IMF.”

In addition, “a restructuring would almost certainly result in the relevant rating being placed in restrictive default,” he said. This rating is given to an issuer who, in Fitch’s opinion, “has experienced an uncured payment default or distressed debt exchange” on a bond or loan but has not declared bankruptcy or entered into any other form of administration.

Meanwhile, Ghana’s President, Nana Addo Dankwa Akufo-Addo, has stated that no debt restructuring will take place while negotiations with the fund continue.

Bloomberg’s full report is below;

Ghana’s sovereign credit rating may be downgraded closer to default by Fitch Ratings should talks with the International Monetary Fund on a record new $3 billion funding package lead to debt restructuring.

If that happens, Fitch would likely lower the country’s long-term issuer default rating to RD from CC, Jan Friederich, head of EMEA Sovereign Ratings, said in a phone interview.

Ghana hopes to use fresh money from the IMF extended credit facility program under discussion to boost its finances and regain access to global capital markets. Investors have been concerned about the financial health of Africa’s second-biggest gold producer, whose public debt was 68% of gross domestic product in end-July, according to central bank data.

“If a debt restructuring is part of the agreement with the IMF then, in terms of default risk, that will supersede any benefit from the financing support that Ghana might get from the IMF,” Friederich said from Hong Kong on Oct. 27.

“A restructuring would likely lead to the relevant rating being placed in restrictive default,” he said. That rating is assigned to an issuer that, in Fitch’s opinion, “has experienced an uncured payment default or distressed debt exchange” on a bond or loan but hasn’t entered into bankruptcy or some other form of administration.

The existing CC rating “means that default is probable, with a higher chance than 50%,” Friederich said.

Default Risk

In September, Moody’s cut its rating on Ghana’s long-term foreign debt to Caa2 from Caa1, citing macroeconomic deterioration which was “heightening the government’s liquidity and debt sustainability difficulties and increasing the risk of default.”

Ghana began formal negotiations for the extended credit facility program with the IMF in September. The world’s second-largest cocoa producer sought help from the Washington-based lender after homegrown policies, including cutting 2022 discretionary expenditure by as much as 30%, failed to stop investors from dumping its Eurobonds. The currency depreciated at a faster pace, and debt-service costs soared.

When Fitch downgraded its assessment in September for the third time this year, it said there was a “high likelihood” that the proposed IMF support program would require some form of debt treatment, due to climbing interest costs and structurally low revenue as a percentage of gross domestic product.

Fitch estimates that Ghana’s government faces interest payments this year equivalent to 44% of revenue, rising to slightly above 50% next year. That compares with a sub-Saharan African median of about 14%, according to the rating agency.

Local Debt

Bloomberg reported in September that Ghana was considering reorganizing part of its 190.3 billion cedis ($13.6 billion) of local debt, as part of the talks with the IMF. A committee was formed last month to solicit views from bondholders for a debt management strategy.

“We would be looking at which part of the debt will be affected,” Friedrich said. “There are still open questions about what decisions they are going to make about the inclusion of local currency or foreign currency debt; we assume for the time being that both will be incorporated.”

Ghana’s 2030 dollar bonds may be excluded from any restructuring because they were partially guaranteed by the World Bank, he said.

READ ALSO: Result Of The Autopsy Conducted On Davido’s Son, Ifeanyi Has Been Revealed