Paris, February 04, 2022 -- Moody's Investors Service ("Moody's") has today
downgraded the Government of Ghana's long-term issuer and
senior unsecured debt ratings to Caa1 from B3 and changed the outlook
to stable from negative. Moody's has also downgraded the senior
unsecured MTN programme ratings to (P)Caa1 from (P)B3 and the backed senior
unsecured debt rating to B3 from B1.
The downgrade to Caa1 reflects the increasingly difficult task the government
faces addressing its intertwined liquidity and debt challenges.
Weak revenue generation constrains government's budget flexibility
and tight funding conditions on international markets have forced the
government to rely on costly debt with shorter maturity. Moody's
estimates that interest payments will absorb more than half the government's
revenue over the foreseeable future, which is exceptionally high
compared to peers at all rating levels. As a remedy, the
government has proposed sharp fiscal consolidation and a switch to borrowings
from external partners on more favourable terms. However,
the strategy comes with sizeable implementation risks, especially
in a still-fragile post-pandemic environment and while international
market creditors price in very wide risk premia. While Ghana's
external buffers and moderate external debt amortization schedule in the
next few years afford the government a window of opportunity to deliver
on its strategy, balance of payments pressures will build up the
longer government's large financing requirements have to rely on
domestic sources.
The stable outlook balances Ghana's significant fiscal challenges,
large refinancing needs and constraints on access to funding against the
government's pre-pandemic track record of relatively effective
policy delivery and maintenance of a variety of funding sources.
Ghana's institutional framework and dynamic economy remain key credit
supports, with economic growth forecasts of around 5% over
the medium term.
Concurrent to the rating downgrade, Moody's has also downgraded
Ghana's bond enhanced by a partial guarantee from the International
Development Association (IDA, Aaa stable) to B3 from B1, reflecting
a blended expected loss now consistent with a one-notch uplift
on the issuer rating.
Finally, Moody's has lowered Ghana's local currency
(LC) and foreign currency (FC) country ceiling to respectively B1 and
B2 from Ba3 and B1. 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 and current account deficits. The FC country ceiling is
maintained one notch below the LC country ceiling, reflecting constraints
on capital account openness and fiscal policy effectiveness against robust
foreign exchange reserves buffers and an average monetary policy effectiveness.
RATINGS RATIONALE
RATIONALE FOR THE RATING DOWNGRADE TO Caa1
DEBT AFFORDABILITY WORSENS, GOVERNMENT DEBT STILL ON AN UPWARD TREND
Moody's projects that Ghana's government debt ratios will
continue to deteriorate in the next few years with extremely weak debt
affordability significantly constraining policymaking.
Moody's estimates that government debt ended 2021 at 80%
of GDP while interest payments alone consumed half of government revenue
that year (positioning Ghana with the second largest ratio among Moody's
rated sovereigns). Given Ghana's still low average income
at about $6000 per capita at Purchasing Power Parity and demands
on social spending, very weak debt affordability constrains the
government's scope of policy action, intensifying the policy
trade-off between servicing debt and delivering services to the
Ghanaian population.
Moody's projects that the government will improve its primary balance
by a cumulative 3% of GDP over 2022-24. The government's
own fiscal consolidation plan presented in November 2021 sets more ambitious
targets, supported by new revenue measures worth 3% of GDP,
some of which have since been opposed in Parliament. The government
has announced a 20% cut in primary spending, equivalent to
a 4% cut on a year-on-year basis or 16% in
real terms, to compensate for any shortcoming in the government's
revenue measures package. Such an unprecedented fiscal tightening
will be socially, economically, and politically challenging
to implement.
Moreover, Moody's factors in further fiscal pressure from
interest payments in the short term as the deterioration in funding conditions
recently observed is unlikely to reverse until the government demonstrates
to investors that significant fiscal consolidation is underway.
Both domestic and external factors underpin Moody's assumption that
debt costs will remain high, including high inflation (at 12.6%
most recently) and Moody's expectation of tighter monetary policy
globally. Ghana's borrowing needs remaining elevated,
at around 30% of GDP annually, mean higher borrowing rates
will quickly translate into higher interest costs. Ultimately,
Moody's expects that a higher interest bill in 2022 and 2023 will
offset the improvement in the government's primary balance,
thereby maintaining double-digit fiscal deficits (in cash terms)
with a concomitant increase in the government's debt burden.
WEAKER GOVERNMENT LIQUIDITY POSITION; EXTERNAL PRESSURES TO MOUNT
THE LONGER FINANCING OPTIONS REMAIN CONSTRAINED
The government of Ghana's capacity to access sufficient funding
sources at manageable costs to meet large funding needs has deteriorated.
The government's external funding options have narrowed and,
for the time being, appear limited to official sector sources or
financing secured with the support of the official sector. This
implies a greater reliance on domestic borrowing, primarily sourced
from the banking sector at a cost that has recently increased to high
levels. Ghana's fiscal reserves, including in the various
petroleum funds remain very small and therefore not suited to provide
funding in times of stress.
Ghana's constraints on external funding come at a time when external
debt service requirements in foreign currency are contained, thereby
limiting short-term government liquidity risks. Foreign
exchange reserves at $9.3 billion as of October 2021 according
to the IMF (equivalent to 8 months of imports) provide a buffer to meet
external debt flows. However, over the medium term,
the government's external liquidity profile will likely erode unless
Ghana is able to restore its access to a wider range of external borrowing
sources, including international markets. This, in
turn, will rely on the ability of the government to demonstrate
a track record of delivering on its fiscal consolidation objectives.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook balances Ghana's significant fiscal challenges,
large financing needs and funding constraints against the government's
pre-pandemic track record of relatively effective policies and
maintenance of a variety of funding sources.
On the downside, the constraints to policymaking posed by interest
payments absorbing such a large proportion of the budget, risk undermining
growth and, over time, social stability. However,
while the capacity of the government to reduce its borrowing needs is
limited, in 2022-23 refinancing will be primarily for local
currency debt, providing a time-window for the government
to deliver on its fiscal consolidation strategy and engender confidence
that may restore its access to a broader range of external funding sources.
Meanwhile, Ghana's institutional framework and dynamic economy
remain key credit supports. The government built a track record
of meeting fiscal targets in the years preceding the pandemic-related
shock in 2020, managing to consolidate its primary balance by 4.5%
of GDP between 2016 and 2019. Improvements to Ghana's personal
and property tax systems and customs will likely continue and help the
government in its efforts to improve tax compliance. Finally,
the country's strong growth potential from multiple sources both in the
oil and non-oil sectors underpins Moody's expectation for
growth in the range of 4.5-6% over the medium term.
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 (E-3
issuer profile score). The cocoa sector is a large contributor
to GDP, exports and employment and being demanding in water,
it exposes the country to climate changes and especially droughts.
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. While the government has
put in place measures aimed at reducing poverty and inequality and strengthening
social safety nets, its fiscal challenges constrain its scope for
meaningful reduction in social risks given more than half of government
revenue is consumed by interest payments.
Governance is highly negative with a G-4 issuer profile score.
Overall, Ghana's institutions have shown some effectiveness.
Moody's has lowered the governance issuer profile score to reflect
domestic revenue mobilisation challenges and significant constraints on
fiscal policy effectiveness reflected by very weak debt affordability.
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$): 5,799 (2020
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 0.4% (2020 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 10.5%
(2020 Actual)
Gen. Gov. Financial Balance/GDP: -10.8%
(2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.1% (2020 Actual)
(also known as External Balance)
External debt/GDP: 45.7 (2020 Actual)
Economic resiliency: ba3
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 01 February 2022, 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 institutions and governance
strength, have decreased. The issuer's fiscal or financial
strength, including its debt profile, has decreased.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade Ghana's ratings if it expected that
the government will face heightened difficulty in covering its funding
needs, increasing the likelihood of default. This could be
evident in a sharper increase in interest rates than currently expected
by Moody's and could result from underperforming fiscal results.
Moreover, there would be downward pressure on the ratings should
Ghana's currency, the cedi, weaken significantly with
limited scope for a reversal.
Conversely, Moody's would likely upgrade Ghana's ratings
if fiscal consolidation proceeded more rapidly, resulting in much
more favourable funding conditions for the government and indicating stronger
policy credibility. Evidence that government's funding options
have broadened sustainably would also provide a path back to a higher
rating level.
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
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
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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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
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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
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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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_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
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Lucie Villa
VP - Senior Credit Officer
Sovereign Risk Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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 France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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