In a significant boost for its economic outlook, Ghana’s Long-Term Local-Currency (LTLC) credit ratings have been upgraded by global ratings agencies Fitch and Moody’s. Fitch has raised its Long-Term Local-Currency Issuer Default Rating (IDR) from ‘CCC’ to ‘CCC+’, while Moody’s has improved its ratings from ‘Caa3’ and ‘Ca’ to ‘Caa2.’ These upgrades reflect a crucial turning point for Ghana, largely stemming from the successful execution of an extensive debt restructuring strategy, including a recent Eurobond exchange. Both agencies highlighted that the restructuring process has alleviated financial pressures for the Ghanaian government, enabling it to regain greater fiscal stability and confidence among investors.
The outlook presented by Fitch and Moody’s further emphasizes the potential for improving Ghana’s financial situation, albeit with differing approaches. Fitch pointed out that it usually does not assign outlooks to sovereigns with a rating of ‘CCC+’ or below, indicating a cautious optimism regarding the country’s financial position. In contrast, Moody’s has shifted Ghana’s outlook from ‘stable’ to ‘positive,’ reflecting its belief that liquidity risks could diminish as the country embarks on ongoing fiscal consolidation efforts backed by an International Monetary Fund (IMF) program. This positive sentiment from the ratings agencies underscores the foundational work being done to create a more robust and sustainable financial environment in Ghana.
Recent comments from Ghana’s Finance Minister, Dr. Mohammed Amin Adam, illustrate the government’s commitment to enhancing its fiscal management. He announced that the country will resume payments owed to its Eurobond holders, following the successful restructuring of $13 billion of external debt. This development has been made possible through an agreement reached with the IMF, focusing on the third review of its Extended Credit Facility (ECF), which plays a pivotal role in Ghana’s debt recovery strategy. This restructuring is particularly vital, as it aims to mitigate the consequences of a nearly $30 billion debt default experienced by the country in 2022.
As part of this sweeping restructuring initiative, Ghana anticipates a substantial reduction of its debt by $4.7 billion, along with a cash flow relief of $4.4 billion during the IMF program. The government has successfully achieved widespread consensus on the debt exchange, with a 98% agreement from stakeholders. The actual debt exchange is set to occur within two weeks, which will enable Ghana to embark on servicing its debts more feasibly. While the ability to service debts will not be at historical levels due to reductions in both interest rates and principal amounts, the postponement of debt servicing with Official Bilateral Creditors until after 2028 provides much-needed relief and time for recovery.
The success of these restructuring efforts is already showing positive effects on Ghana’s economic performance. The Ghana Statistical Service recently reported that the country’s economy grew by an impressive 6.9% in the second quarter of 2024, marking the highest growth rate recorded in five years. This upward trend in economic growth within the first half of 2024 far exceeds earlier projections, signaling a resilient rebound amid the challenges faced over the previous years. Such promising economic indicators highlight the effectiveness of the fiscal policies implemented and the crucial role of international support in stabilizing Ghana’s financial architecture.
In conclusion, the upgrades to Ghana’s credit ratings signify a renewed confidence among investors and international stakeholders. The structured debt relief and ongoing collaboration with the IMF are crucial for the stabilization and growth of Ghana’s economy. While challenges remain, the strategic initiatives taken by the government, including the resumption of debt payments and significant economic growth, foster optimism for a more secure financial future. With sustained fiscal discipline and support from international partners, Ghana stands at a pivotal moment to consolidate its recovery and reshape its economic landscape for long-term prosperity.
