Fitch upgrades Ghana’s long-term local currency rating from RD to CCC

Rating agency Fitch has raised Ghana’s Long-Term Local Currency Issuer Default Rating (IDR) from ‘RD’ to ‘CCC’ and confirmed the Long-Term Foreign-Currency IDR at ‘RD’. The Country Ceiling remains at ‘B-‘.

Fitch has assigned ‘CCC’ ratings to two interest-only bonds issued following the pension funds’ completion of holdings in the Domestic Debt Exchange. Additionally, ‘CCC’ ratings were assigned to four domestic US dollar-denominated bonds issued on September 4, 2023.

The upgrade of Ghana’s Long-Term Local Currency IDR is linked to the conclusion of the Domestic Debt Exchange Programme.

Fitch recognises that Ghana has re-established working relationships with a substantial majority of local currency creditors, with a participation rate of 92% for local-currency government bonds, Cocoa bills, and locally issued foreign-currency bonds.

Some non-participating bondholders are domestic individual bondholders, who the authorities have affirmed to be current on payments following a memorandum of understanding signed in May 2023.

This series of domestic debt exchanges has resulted in a substantial debt service reduction in 2023, equivalent to ¢52 billion, which represents 6% of the estimated 2023 GDP or 39% of estimated 2023 revenue and grants.

For context, the International Monetary Fund previously noted that debt service accounted for 117% of revenue in 2022.

Of the total debt service reduction, Fitch estimates that the reduction in interest payments for 2023 accounts for 1.8% of Gross Domestic Product (GDP) or 12% of revenue and grants.

The domestic US dollar-denominated debt exchange has contributed an additional ¢5.0 billion (0.6% of GDP or 4% of revenue and grants) in debt service reduction for 2023.

Furthermore, Ghana expects to achieve further reductions due to a 50% principal haircut agreed with the Bank of Ghana on its holdings of ¢71 billion local-currency nonmarketable debt.

Fitch’s upgrade of Ghana’s Long-Term Local Currency IDR reflects the positive impact of the Domestic Debt Exchange Programme on the country’s debt service and relations with local currency creditors.