Fitch Ratings has upgraded Ghana’s Long-Term Local Currency Issuer Default Rating (IDR) from restrictive default (‘RD’) to ‘CCC.’
The upgrade comes on the heels of Ghana’s successful completion of the Domestic Debt Exchange Programme, a testament to the positive strides made by Ghana in managing its domestic debt obligations.
Notably, Fitch emphasizes that Ghana has managed to normalize relations with the vast majority of its local currency creditors, with an impressive participation rate of 92% in key financial instruments such as local-currency government bonds and Cocoa bills, as well as locally issued foreign-currency bonds.
The impact of the debt exchange is substantial, with Fitch estimating a substantial debt service reduction of GHS 52 billion in 2023. This figure represents a significant portion equivalent to 6% of the estimated 2023 GDP of the country or a remarkable 39% of the projected revenue and grants for 2023.
This development takes on even greater significance when considering the backdrop of 2022, where debt service represented a staggering 117% of revenue, according to the International Monetary Fund (IMF).
Furthermore, Fitch’s analysis highlights that the interest payment reduction for 2023 alone is estimated to be 1.8% of the Gross Domestic Product (GDP) or a notable 12% of the total revenue and grants for the year.
In addition to these developments, the domestic US dollar-denominated debt exchange has added another GHS 5 billion to the debt service reduction for 2023, representing 0.6% of GDP and a significant 4% of revenue and grants.
Lastly, Ghana’s collaboration with the Bank of Ghana in agreeing to a 50% principal haircut on its holdings of GHS 71 billion local-currency non-marketable debt is set to deliver further positive results in reducing debt service commitments.
According to Fitch Ratings, Ghana’s economic trajectory appears to be on an upward curve, with these debt management strategies being recognized and applauded by the rating agency.
The improved credit rating, especially in the local currency category, is a promising sign for Ghana’s financial stability and its ability to effectively address debt-related challenges.
