Ghana’s creditworthiness would continue to be downgraded, according to Fitch, a global rating agency, to extremely deeper junk status.
On December 21, 2022, Fitch lowered Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) from “CC” to “C” and the issue ratings on the country’s outstanding foreign debt.
This comes after the administration indicated that it will stop making payments on its external debt.
According to Fitch, the start of a sovereign default process is the cessation of interest payments on a specific category of foreign debt, such as Eurobonds, commercial term loans, and the majority of bilateral debt.
“On 20 December, the government announced plans to restructure its external sovereign debt, which will add to the pressure on banks’ capital. Details have yet to be announced but payments on selected external debt, including Eurobonds, commercial term loans, and most bilateral debt, have been suspended. Fitch views this as the beginning of a sovereign default process,” parts of Fitch’s statement read.
The issue rating on Ghana’s partially-guaranteed $1 billion notes maturing in 2030 was also downgraded to ‘CC’ from ‘B- ‘.
The dollar notes benefit from a partial credit guarantee (PCG) backed by the International Development Association of the World Bank for scheduled debt service payments of up to 40% of the original principal.
In the statement, Fitch said a multiple-notch uplift has been assigned to the notes to reflect its view that the PCG reduces the bonds’ potential for default and increases the possible recovery in the event of issuer default.
Meanwhile, S&P Global Ratings also downgraded the country to selective default status after the debt suspension announcement by the government.