Following Ghana’s successful Eurobond debt restructuring, Fitch Ratings has assigned a ‘CCC+’ rating to the country’s new U.S. dollar bonds. In addition, the rating agency has upgraded Ghana’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to ‘CCC+’ from ‘CCC’, reflecting growing confidence in the country’s domestic credit profile.
Fitch Ratings is one of the world’s leading credit rating agencies, which provides credit ratings, research, and risk analysis to help investors assess the creditworthiness of businesses, governments, and financial institutions. Fitch’s ratings are used by investors and lenders to determine the level of risk associated with lending money or investing in bonds issued by corporations, financial institutions, and sovereign entities.
As part of Ghana’s Eurobond restructuring, which was completed by 98.58% of bondholders, five new bonds have replaced 15 outstanding Eurobonds, including a partially guaranteed note from the International Development Association (IDA).
This restructuring will result in a significant reduction in Ghana’s foreign currency debt burden by 2024, which will amount to around 6% of the country’s GDP. This will also ease debt service payments by $3.5 billion over the 2024-2026 period, relieving some immediate fiscal pressure. However, risks remain high, coupled with interest payments still consuming a substantial portion of government revenue.
The ‘CCC+’ rating indicates slight improvements in Ghana’s financial standing after the restructuring, particularly in the local currency sector. This suggests increased confidence in Ghana’s ability to meet its local currency obligations, which can enhance investor sentiment and possibly attract more domestic investment.
On the flip side, the rating remains within the speculative category, meaning that while there are improvements, significant credit risks still exist. Ghana’s external debt continues to pose challenges, and the country’s ability to manage these debts without further restructuring remains uncertain.
The ‘CCC+’ rating for the newly restructured U.S. dollar bonds shows that investors may have greater confidence in Ghana’s repayment capacity post-restructuring. This could help the country tap into international markets with more favorable conditions than prior to restructuring.
However, the low rating still indicates vulnerability to external shocks, such as changes in global interest rates, which could strain Ghana’s ability to service its external debts. The country remains susceptible to foreign currency fluctuations and international market pressures.
The ratings upgrade for local currency bonds and the stabilization of the Eurobond market could allow Ghana to borrow at somewhat lower interest rates domestically and internationally, reducing overall borrowing costs.
On the downside, even with the rating upgrades, the ‘CCC+’ grade means Ghana will still face high borrowing costs relative to countries with stronger credit profiles. It may take time and sustained reforms for Ghana to see more substantial improvements in its creditworthiness.
