London, 03 September 2021 -- Moody's Investors Service ("Moody's") has today affirmed the B3 long-term
issuer ratings of the Government of Ghana. The outlook remains
negative. Moody's has concurrently affirmed the B3 foreign
currency senior unsecured debt ratings, the (P)B3 senior unsecured
MTN programme rating and the B1 rating of the bond enhanced by a partial
guarantee from the International Development Association (IDA, Aaa
stable).
The B3 rating and negative outlook reflect Ghana's high debt burden
that is unlikely to fall rapidly, continued weak debt affordability,
high gross borrowing requirements and ongoing liquidity challenges in
the face of downside economic, social and financial risks in the
aftermath of the coronavirus pandemic. The rating affirmation also
takes into account improving growth prospects, resilient external
sector performance and Ghana's continued access to domestic and
international capital markets, supported by the government's structural
economic reform agenda to improve export competitiveness and broaden the
revenue base.
Ghana's local currency (LC) country ceiling remains unchanged at
Ba3 and the foreign currency (FC) country ceiling unchanged at B1.
Moody's assessment is that non-diversifiable risks are appropriately
captured in a 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, external imbalances, and reliance on revenue from
commodities that can lead to country-wide stress. The FC
country ceiling is maintained one notch below the LC country ceiling,
reflecting existing constraints on capital account openness, balanced
against moderate fiscal and monetary policy effectiveness.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL453811
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
RATIONALE FOR THE B3 RATING AFFIRMATION AND MAINTAINING THE NEGATIVE OUTLOOK
WEAK DEBT AFFORDABILITY AND LARGE GROSS FINANCING NEEDS DRIVE EXPOSURE
TO DOMESTIC AND EXTERNAL FUNDING SHOCKS
Ghana's credit profile is characterized by large gross borrowing requirements
that exceed 20% of GDP, as well as persistent weak debt affordability
stemming from interest payments rising to over 40% of revenue—both
of which are among the weakest of sovereigns rated by Moody's,
underpinning its exposure to potential funding shocks.
Both long-standing credit characteristics are the result of a high
debt burden financed at relatively high costs and relatively short maturities.
These vulnerabilities have been exacerbated by the pandemic. The
fiscal deficit widened to 13.9% of GDP in 2020 (inclusive
of costs associated with the financial sector clean-up and "take
or pay" energy contracts), pushing the debt burden beyond
80% of GDP, from 62.6% in 2019.
While the government's most recent budget sets out a plan of fiscal
consolidation to reduce the fiscal deficit to 4.8% of GDP
by 2024, the longer-term economic and social scarring from
the coronavirus shock presents significant challenges to achieving such
ambitious targets. Moody's assumes that the pace of consolidation
will be slower, leaving the debt burden above 80% of GDP
for the foreseeable future.
In the meantime, Ghana will increasingly rely on domestic and international
bond issuance to meet deficit financing requirements and eurobond maturities
starting 2023 and rising to $1 billion per year 2025-2027,
leaving the sovereign exposed to a potential unfavorable turn in investor
confidence.
ROBUST GROWTH RECOVERY AND STABLE EXTERNAL POSITION SUPPORT CREDITWORTHINESS
Downside risks notwithstanding, Ghana's credit profile benefits
from strong economic growth potential. Moody's expects GDP
growth to rise towards 6% in 2022 and stay around these rates in
the medium term -- in the absence of new shocks.
Meanwhile, Ghana's external position which has been a credit
weakness in the past, has remained relatively stable through the
pandemic, denoting greater resilience. The current account
deficit was stable last year, at 2.6% of GDP;
assuming steady commodity prices, Moody's expects the deficit
to remain relatively narrow around 3% of GDP. Foreign exchange
reserves, at four months of imports cover, have been bolstered
by the recent eurobond issuance and gold and cocoa production that continues
to perform well. Coupled with the ramping up of oil and gas production
from the Pecan field, export prospects remain favorable.
Ghana also has a track record of political stability and relatively sound
institutional and governance frameworks compared to peers, most
recently demonstrated in the peaceful elections in late 2020 and continued
implementation of the economic reform agenda to improve export competitiveness
and broaden the revenue base.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Ghana's ESG Credit Impact Score is highly negative (CIS-4),
reflecting its high exposure to social risks. Resilience to environmental
and social risks is weak, constrained by low wealth and high debt
levels.
Ghana's credit profile is moderately exposed to environmental risks
and is reflected in its E-3 issuer profile score. The cocoa
sector is a large contributor to GDP and to exports and remains an important
source of employment. Ghana is exposed to water management risks
stemming from a lack of access to potable water in some areas.
The weight of the agricultural sector exposes the economy to weather-related
disruptions and the effects of climate change.
The exposure to social risk is high (S-4 issuer profile score),
driven by limited access to quality housing and education, especially
in rural areas. Risks related to health and safety and access to
basic services are moderately negative. In general, the government's
measures aimed at reducing poverty and inequality and continuing to strengthen
social safety nets somewhat mitigate but do not fully offset social risks.
Governance is moderate with a G-3 issuer profile score.
Overall, Ghana performs better than many other Sub Saharan African
peers, albeit the score partly reflects the slow domestic revenue
mobilisation challenges facing the authorities. The authorities
have undertaken some institutional reforms on the revenue and competitiveness
front, which will take some time to produce results.
GDP per capita (PPP basis, US$): 5,693 (2020
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 0.9% (2020 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 10.4%
(2020 Actual)
Gen. Gov. Financial Balance/GDP: -11.4%
(2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -2.6% (2020 Actual)
(also known as External Balance)
External debt/GDP: 47.1% (2020 Actual)
Economic resiliency: ba2
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 31 August 2021, a rating committee was called to discuss the
rating of the Ghana, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutions and governance strength, have not materially
changed. The issuer's governance and/or management, have
not materially changed. The issuer's fiscal or financial strength,
including its debt profile, has not materially changed. The
systemic risk in which the issuer operates has not materially increased.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, an upgrade is unlikely in the near term.
The outlook could be returned to stable were Moody's to conclude
that the fiscal consolidation plan would arrest, and eventually
lead to a markedly downward trajectory in, the debt burden over
time. In addition, an effective domestic revenue mobilisation
plan that bolsters debt affordability, creating more fiscal room
for maneuvre, and lowers government liquidity risks would likely
lead to a higher rating.
Moody's would downgrade the rating if it were to conclude that liquidity
pressures over a prolonged period were likely to create significant fiscal
challenges. Moreover, increasing evidence that Ghana will
be unlikely to be able to raise revenue and contain expenditure resulting
from slow fiscal consolidation, evidenced by a rise in its fiscal
deficit and debt would also likely lead to a downgrade.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL453811
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kelvin Dalrymple
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
