New York, January 24, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of Ghana's long-term issuer and senior unsecured bond ratings at
B3 and changed the outlook to positive from stable. Moody's has
concurrently affirmed the rating of the bond enhanced by a partial guarantee
from the International Development Association (IDA, Aaa stable)
The decision to assign a positive outlook reflects Moody's rising
confidence that the country's institutions and policy settings will
foster improved macroeconomic and fiscal stability over the medium term,
in part as a consequence of the reforms implemented under the recent IMF
reform program. Those reforms are beginning to bear fruit,
as seen for example in the return to primary fiscal surpluses, measures
to smooth the debt maturity profile and increasingly sustainable growth
prospects. Pressures and risks remain, as evidenced by persistent
revenue challenges, a potential repeat of pre-election fiscal
cycles, and the emergence of significant arrears and further contingent
liabilities in the energy sector, all contributing to rising public
debt. The positive outlook reflects increasing confidence that
the government will manage those pressures in such a way as to sustain
and enhance external and fiscal stability.
The decision to affirm the B3 rating balances, for now, those
positive medium-term trends and existing challenges. A key
constraint on the rating is the country's significant exposure to
international capital flow reversals, which tend to coincide with
exchange rate volatility and rising external and domestic borrowing costs,
putting pressure on already weak debt affordability. Measures which
reduce that exposure by demonstrating reliable liquidity risk management
and increasingly firm control over the debt position would support an
upgrade to a B2 rating. However, those measures will take
time to evidence impact. As a consequence, the outlook is
unlikely to be resolved quickly and may even extend beyond the usual 18
month period in order to monitor how policy unfolds following the forthcoming
election, and in particular the government's progress in implementing
its energy recovery strategy.
Ghana's foreign- and local-currency bond and deposit ceilings
remain unchanged, namely the foreign-currency bond ceiling
at B1, the foreign-currency deposit ceiling at Caa1,
and the local-currency bond and deposit ceilings at Ba3.
RATIONALE FOR THE POSITIVE OUTLOOK
RISING CONFIDENCE THAT POLICYMAKERS WILL SUSTAIN ECONOMIC AND FINANCIAL
For some time, Ghana's rating has been constrained by two
related factors. First, by the challenges its policymaking
institutions have experienced in establishing a consistent set of policies
which support macroeconomic and financial stability, and which survive
changes of government. Second, by the high level of external
commercial debt holdings which, taken alongside limited net foreign
exchange reserves, exposes the government and the balance of payments
to a loss of international investors' confidence in policymakers'
ability to sustain economic and financial stability, raising the
risk of a fiscal and/or balance of payments crisis.
However, in recent years Ghana has seen a number of positive developments
in key credit metrics, which partly reflect the institutional and
fiscal reforms implemented under the four-year IMF program that
was completed in April 2019. These include a return to sustained
economic growth at around 5% on average, supported by the
development of domestic hydrocarbon resources and the prospect of sustained
non-oil growth driven by the restoration of power supply and renewed
infrastructure investment, a structural improvement in the current
account dynamics, and fiscal reforms which have resulted in primary
surpluses since 2017.
Key fiscal reforms include the Public Financial Management Act (2016)
which improves fiscal governance and the Fiscal Responsibility Law (2018)
requiring adherence to an overall fiscal deficit ceiling of 5%
of GDP and a primary surplus. 2019 saw a cash deficit of 4.8%
of GDP and a primary surplus of 0.9% of GDP -- weaker
than the initial targets but within overall limits. Moody's
expects a similar outcome this year and a renewed shift to fiscal consolidation
following the election.
Beyond the fiscal sphere, measures taken over the past couple of
years to recapitalize the financial sector and to address the country's
power deficit (albeit the latter with problematic unintended consequences)
also suggest active, moderately effective policymaking and support
rising confidence in policymakers' ability to sustain economic and
financial stability, and to limit the risk of external shocks in
the coming years.
RATIONALE FOR AFFIRMING THE B3 RATING
Nevertheless, challenges remain, alongside developments which
suggest that the roots of the institutional reforms are, for now
at least, shallow. The rise in deficits in 2019 as the election
approaches, as in past cycles, suggests a high likelihood
that the usual pre-election fiscal stimulus will emerge in 2020.
Fiscal targets have been achieved in part by recording as 'below
the line' items fiscal costs relating to the recapitalization of
the banking sector and to energy legacy debts which have caused the overall
debt burden to continue to rise. The government is contemplating
issuing additional, 'collateralised', debt to
support investment in bauxite refining in part to absorb surplus energy.
As a result, the debt burden has risen by nearly ten percentage
points of GDP since 2017, in part as a consequence of the financial
sector bailout in 2018-19 and the measures taken to clear legacy
power utility debts (estimated at 4.5% and 2% of
GDP, respectively). Estimated at around 64% of GDP
at end-2019, it is expected to rise further over the near
term. How far and for how long it rises will depend in part on
the government's success in preserving exchange rate stability and
in dealing with additional contingent liabilities arising in the energy
Those contingent liabilities arose from the agreement of 'take or
pay' contracts with energy producers extending until 2023,
which were entered as part of the measures taken to address the acute
power shortages experienced earlier in the decade. While the power
shortages were indeed alleviated and the consequent shadow over economic
activity lifted, this was achieved under a program that incorporated
overoptimistic estimates of power demand which have left the government
bearing ongoing 'take or pay' costs. According to the
government's Energy Sector Recovery Program (ESRP), under
a business as usual scenario, the government faces annual costs
of between $1.6 billion (2.3% of GDP) and
$2.6 billion (3% of GDP) from 2020-23 which,
added to outstanding energy sector arrears of $2.7 billion
(or 4.1% of GDP) at the end of 2018 could sum to around
$12.5 billion, or about 14% of GDP by 2023.
The government is contemplating a number of measures under the Energy
Sector Recovery Program (ESRP) to reduce the fiscal impact of the annual
financial shortfall in the energy sector without further increasing arrears.
The likelihood of their being successful is unclear and some measures,
including the finalization of the domestic energy infrastructure or the
development of the Integrated Aluminium Strategy to boost demand,
will likely require upfront investments that increase the debt load still
Moody's debt projections include an annual assumption of 2%
of GDP in the form of contingent liabilities, implying a further
increase in the debt ratio to over 65% of GDP by 2023. Moody's
forecasts also include disbursements under the $2 billion financing
deal with Sinohydro -- an infrastructure financing deal that is collateralized
by the country's yet to be mined and refined bauxite resources --
at an assumed annual execution rate of about $100-$200
million in the funding requirements and in the debt ratio.
Overall, fiscal flexibility remains low. Since around 40%
of the debt stock is denominated in foreign currency, the debt trajectory
is sensitive to exchange rate shocks. At 15%, revenue-to-GDP
remains low notwithstanding efforts -- and future plans -- to
enhance tax collection. The government's borrowing requirement
is moderate at around 16% of GDP annually, but it remains
reliant on continued international capital market access to meet its funding
needs in the future. Some of these challenges are mitigated by
the government's maturity lengthening strategy and by the continued
smoothing of the debt refinancing undertaken both in the domestic and
external debt segments ahead of the next eurobond maturity due in 2023.
ENVIRONMENTAL SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental considerations are material for Ghana. The cocoa
sector is a large contributor to GDP and to exports and remains an important
source of employment. The weight of the agricultural sector exposes
the economy to weather-related disruptions and (over the longer
term) the effects of climate change.
Social considerations are not material for Ghana's credit profile.
The country's improved development indicators over time have supported
a relatively peaceful and democratic political backdrop, as reflected
in our low assessment of political risk.
Governance considerations are material for Ghana's credit profile.
As previously noted, the B3 rating partly reflects institutional
challenges within the policymaking apparatus; conversely, the
positive outlook reflects rising confidence that institutional reforms
may be taking root.
FACTORS THAT COULD LEAD TO AN UPGRADE
Over the coming 1-2 years, Moody's will assess the
government's willingness and capacity to arrest the rise in the
debt burden and to sustain and deepen economic resilience. That
assessment will take into account how far the government adheres to the
letter and spirit of the Public Financial Management Act (PFMA) and Financial
Responsibility Law (FRL), at least once the election is past,
including through the transparent recording of off-budget and below-the-line
transactions that create funding needs. It will, relatedly,
take into account the government's success in mitigating the fiscal
impact of energy sector contingent liabilities and arrears, and
in improving revenue collection efforts.
Taken together, a set of measures that arrest the rise in the direct
and contingent debt burden and give confidence that the burden will fall
over time would support an upgrade to B2. Economic developments
which enhance potential growth would also be credit supportive,
as would indications from debt issuance that the government's efforts
are garnering confidence among international investors on a sustained
FACTORS THAT COULD LEAD TO A DOWNGRADE
Conversely, Moody's would likely return the outlook to stable
at the B3 level should it conclude that the coming years will not see
a more consistent, effective policymaking environment emerge.
The disregard or undermining of fiscal rules, and the inability
to achieve structural revenue-based improvements in the fiscal
position or to mitigate downside risks arising from arrears and contingent
liabilities would be important signals in this respect. Indications,
such as falling demand or rising issuance costs, that external investors,
on whom the government relies to service and refinance external debt,
are losing confidence in the government's ability to sustain fiscal
or economic resilience would similarly undermine the government's
GDP per capita (PPP basis, US$): 6,492 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 6.3% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 9.4%
Gen. Gov. Financial Balance/GDP: -3.8%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.1% (2018 Actual)
(also known as External Balance)
External debt/GDP: 35.6% (2018 Actual)
Economic resiliency: ba3
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 22 January 2020, 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 increased. 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 changed. The issuer's susceptibility
to event risks has not materially changed.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019. 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.
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
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653