Fitch dismisses the likelihood of another round of domestic debt restructuring

In its latest assessment of Ghana’s financial landscape, Fitch Ratings has announced that it views the likelihood of another round of local-currency debt exchange as improbable in the near future.

This statement comes in the wake of Fitch’s decision to upgrade Ghana’s credit rating to ‘CCC’ from Restrictive Default (RD) marking an important milestone in the country’s economic progress.

The significance of this decision lies in the substantial debt service reduction achieved through recent financial initiatives. Fitch highlights that the local-currency debt exchanges have already contributed to a considerable reduction in debt service, amounting to GHS 52 billion in 2023. This represents approximately 6% of the estimated 2023 Gross Domestic Product (GDP) or a substantial 39% of the anticipated 2023 revenue and grants.

According to the International Monetary Fund (IMF), debt service obligations represented a staggering 117% of revenue in 2022. Fitch’s assessment indicates that a significant portion of this debt service reduction translates into a 1.8% reduction in GDP or 12% of revenue and grants for the year 2023.

In addition to these achievements, Fitch recognizes the impact of the domestic US dollar-denominated debt exchange, which has contributed an additional GHS 5 billion, equivalent to 0.6% of GDP and 4% of revenue and grants, to the overall debt service reduction for 2023.

Furthermore, a notable reduction in debt service obligations is anticipated through a 50% principal haircut agreed with the Bank of Ghana on its holdings of GHS 71 billion local-currency nonmarketable debt.

While these measures have indeed brought down interest payments to a still relatively high 38% of revenue and grants in 2023, from the elevated 47% seen in 2022 (on a commitment basis, inclusive of interest payments due in 2023 on external debt), Fitch’s assessment suggests that the need for another round of local-currency debt exchange is remote in the near term.

As part of this financial landscape, Fitch has also assigned ‘CCC’ issue ratings to two interest-only bonds issued to pension funds and to four domestic US dollar-denominated bonds, all of which were part of the domestic debt exchanges. The agency has also affirmed the ‘CCC’ issue rating on local-currency bonds assigned on March 22, 2023.

It is noteworthy that Ghana’s timely first coupon payments on these “new” bonds in August indicate a commitment to its financial obligations and a positive step towards stability and sustainability in its economic endeavors.