The Sovereign credit rating downgrades of Ghana by Fitch and Moodyâ€™s led to â€œwidened yield spreads on both cedi-denominated government of Ghana bonds and the countryâ€™s Eurobondsâ€, the Bank of Ghana has said.
â€œThese downgrades reflect market and investor concerns about fiscal and debt sustainabilityâ€, Governor Ernest Addison told journalists on Monday, 21 March 2022 at the Monetary Policy Committeeâ€™s 105th meeting.
Consequently, Dr Addison said, â€œthe Ghana cedi has come under severe pressure, as offshore investors exited positions in domestic securities at a time when domestic demand for forex has increased, reflecting both real and speculative demandâ€.
This, he noted, has caused the exchange rate â€œto overshoot its long-term trendâ€.
Dr Addison noted: â€œThe strengthening of the US dollar, liquidity pressures, uncertainties regarding budget implementation, portfolio reversals by nonresidents and some speculative pressures are key contributory factorsâ€.
Moodyâ€™s Investors Service downgraded Ghanaâ€™s long-term issuer and senior unsecured debt ratings to Caa1 from B3 and changed the outlook to stable from negative.
Moodyâ€™s said on Friday, 4 February 2022: â€œThe downgrade to Caa1 reflects the increasingly difficult task the government faces addressing its intertwined liquidity and debt challengesâ€.
â€œWeak revenue generation constrains governmentâ€™s budget flexibility, and tight funding conditions on international markets have forced the government to rely on costly debt with shorter maturityâ€, Moodyâ€™s noted.
Moodyâ€™s said its projection shows that more than half of the countryâ€™s revenue will go into the payment of interests for the next few years, and proposals by the government to fix the challenge does not seem to be feasible, especially given the fragile post-pandemic environment.
â€œWhile Ghanaâ€™s external buffers and moderate external debt amortisation schedule in the next few years afford the government a window of opportunity to deliver on its strategy, balance of payments pressures will build up the longer governmentâ€™s large financing requirements have to rely on domestic sources,â€ it noted.
Apart from the long-term issuer and senior unsecured debt downgrade, Moodyâ€™s also downgraded Ghanaâ€™s bond enhanced by a partial guarantee from the International Development Association (IDA, Aaa stable) to B3 from B1, â€œreflecting a blended expected loss now consistent with a one-notch uplift on the issuer rating.â€
It also lowered Ghanaâ€™s local currency (LC) and foreign currency (FC) country ceiling to respectively B1 and B2 from Ba3 and B1.
â€œNon-diversifiable risks are appropriately captured in an LC ceiling three notches above the sovereign rating, taking into account relatively predictable institutions and government actions, low domestic political, and geopolitical risk; balanced against a large government footprint in the economy and the financial system and current account deficits,â€ Moodyâ€™s said in its report.
About a month ago, Fitch also downgraded Ghanaâ€™s Long-Term Foreign-Currency Issuer Default Rating (IDR) to â€˜B-â€™ from â€˜Bâ€™ with a negative outlook.