The nation’s credit ratings could sink further, as credit evaluator Fitch Ratings warns of another possible downgrade due to several factors – including failure to honour interest and principal payments on maturing bonds to holders who opted out of the debt exchange during the grace period.

This, Fitch says, could result in a prolonged long-term (LT) local currency (LC) Issuer Default Rating (IDR) in the Restricted Default (RD) status.

This comes as government missed a principal payment on February 6, 2023 valued at GH¢4.2trillion. According to Fitch, it failed to clarify when holders who opted out of the protracted domestic debt exchange will receive payments.

In the second amended and restated exchange memorandum released on February 7, 2023, fiscal authorities announced that eligible holders of this bond will not receive a final interest payment and a final principal payment – regardless of whether an eligible holder had tendered their instruments or not.

In its recent rating of the country, the ratings agency downgraded the nation’s LT LC IDR to RD from a previous ‘C’ rating.

“The rating will be based on a forward-looking assessment of Ghana’s willingness and capacity to honour its local currency debt,” Fitch added.

Meanwhile, in a press release issued on February 14, 2023 the Ministry of Finance announced that coupon payments and maturing principals will be honoured “in line with government fiscal commitments”.

This announcement, according to Fitch, however does not yet clarify when the payments will be made to holders who opted out of the programme.

“In particular, it does not clarify whether a principal payment will be made before expiration of the grace period for this specific issue. This security is one of the six issues that have been downgraded to ‘D’,” Fitch explained.

Investors are closely watching the evolution of the country’s debt situation as well as government’s ability to honour payments and its potential impact on the credit rating. Already, the country has lost access to international markets on the back of higher borrowing costs.

Foreign debt concerns

Failure to make scheduled coupon or maturity payments on the country’s foreign-currency bonds within the grace period could result in a ‘RD’ status, Fitch said.

“Failure to make scheduled coupon or maturity payments on Ghana’s foreign-currency bonds within the grace period could lead to a downgrade of Ghana’s LT FC IDR to ‘RD’,” warned Fitch Ratings, adding that Ghana’s partially-guaranteed notes could also face downgrades depending on progress of the debt restructuring.

The warning comes amid a challenging economic environment, as the country races against time to get a much-needed International Monetary Fund (IMF) US$3billion bailout.

Fitch mentioned that once Ghana reaches an agreement with private creditors on the restructuring of its foreign currency-denominated debt and completes that restructuring process following the Common Framework official creditors’ claims treatment, it will assign a Long-Term Foreign-Currency Issuer Default Rating based on a “forward-looking assessment of its willingness and capacity to honour its foreign-currency debt”.

Meanwhile, evidence that the partially-guaranteed notes will be excluded from the external debt restructuring could lead to an upgrade of the issue rating on the partially-guaranteed notes.

However, the debt exchange has allowed the fiscal authorities to reduce interest payments by 1.5 to 2 percentage points of Gross Domestic Product (GDP) in 2023, assuming the 85 percent participation rate is equally distributed among eligible bonds and eligible bondholders.

The outstanding principal of eligible bonds amounts to GH¢132.4billion, approximately 22 percent of the 2022 estimated GDP.