The international rating agency, Moody’s Investor Service has downgraded Ghana’s long-term issuer and senior unsecured debt ratings to Caa1 from B3 and changed the outlook to stable from negative.
This is the worst rating ever that Ghana has been given by the rating agency. This will make it extremely difficult for Ghana to source international funds because international investors take such ratings seriously.
Also, even investors will dare lend money to Ghana, either they will do it on the condition of cut-throat collateral or at high interest rate.
Consequently, Moody’s downgrade of Ghana’s debt rating is the rating agency’s simple way of saying that if loans are given to Ghana without collateral, the country will very likely not be able to pay back with its debt to GDP ratio around 80%.
This puts Ghana in a precarious position for global vulture economies like China to advance funds to the country and seize its strategic assets and infrastructures like ports, airports, and other important sovereign installations.
China is noted for such a move in Africa, having set up countries like Uganda, Kenya, etc. in a debt trap that ultimately handed those country’s important infrastructure to China.
“The downgrade to Caa1 reflects the increasingly difficult task the government faces addressing its intertwined liquidity and debt challenges. Weak revenue generation constrains the government’s budget flexibility and tight funding conditions on international markets have forced the government to rely on costly debt with a shorter maturity,” Moody’s explained.
The development is an indictment on the Akufo-Addo government which has messed up the country’s finances mainly with reckless borrowing that has ballooned the country’s debt so high that it is hard to see how it can service the debt.
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,” Moody’s said.
Moody’s downgrade is coming barely a month after another rating agency, Fitch had downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’ with negative.
Explaining the rationale for the ratings, Moody’s said, it projects that “Ghana’s 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 the 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 debts 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,” Moody’s stated.