Moody’s Investors Service have downgraded Ghana’s credit rating due to the possibility that private creditors would suffer significant losses as a result of the government’s anticipated debt restructuring.
The country’s credit rating was slashed by two levels to Ca, the second-lowest score at Moody’s, according to a Tuesday statement. That puts Ghana on par with Sri Lanka, which is in default.
The rating follows government budget proposals for Ghana for 2023 that call for both domestic and foreign debt restructuring.
“The Ca rating reflects Moody’s expectation that private creditors will likely incur substantial losses in the restructuring of both local and foreign currencies debts planned by the government as part of its 2023 budget proposed to Parliament on 24 November 2022. Given Ghana’s high government debt burden and the debt structure, it is likely there will be substantial losses on both categories of debt in order for the government to meaningfully improve debt sustainability,” analysts Lucie Villa and Marie Diron wrote in the statement.
At the same time, Ghana’s outlook was changed to stable as the restructuring will likely happen in coordination with creditors and under a program with the International Monetary Fund, according to Moody’s.
“The stable outlook balances Moody’s assumption that the debt restructuring will happen in coordination with creditors and under the umbrella of a funding program with the IMF against the potential for a less orderly form of default that could result in higher losses for private-sector creditors.”
Last month, West Africa nation established a committee to begin negotiations with domestic bondholders about restructuring its local currency debt.
Ghana’s Eurobonds have been among the worst performers in emerging markets since Bloomberg reported the plans for the local debt recast in September, handing investors losses of almost 12% in that period, according to data compiled from a Bloomberg index.
The nation’s debt-exchange program will replace existing terms and exchange debts with longer tenors at cheaper rates, said Abena Osei Asare, a deputy minister of finance. The plans come after an analysis of debt sustainability showed the nation faces a high risk of distress.
Fitch Ratings scored the nation at CC, two notches above default. S&P Global Ratings also assigned it CCC+, seven levels into junk.
