Editorial: Missed payments on bonds caused ratings downgrade


Last month, Fitch Ratings agency upgraded Ghana’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to ‘CCC’ from ‘RD’ on account of completing the local debt restructuring programme effective February 21.

However, the rating agency has downgraded the nation’s LTLC to restricted default (RD) – from ‘CCC’, due to missed payments on some local-currency-denominated bonds issued prior to the domestic debt exchange programme (DDEP).

The reversal reflects missed payments on bonds that were not tendered, or held by ineligible entities for participating in the domestic debt exchange, the rating agency noted.

This comes after government announced it was resuming payments on local-currency bonds issued prior to the domestic debt exchange on 13th March 2023 to bondholders who were either ineligible or did not participate in the domestic debt exchange.

That notwithstanding, only coupon payments on the two-year note that matured on 20th February 2023 and the 20-year note maturing in 2039 have been made, with the principal payment on the former note still outstanding.

Furthermore, Fitch has downgraded to ‘CC’ from ‘CCC’ the issue rating of five local-currency bonds issued prior to the debt exchange; and has subsequently withdrawn the rating on these securities due to the limited information and uncertainty regarding the timely servicing of the securities issued before the domestic debt exchange.

Despite a substantial redemption re-profiling and significantly lowered interest rates, Fitch estimates that the present value of public debt-to-GDP has been reduced by only 1 percent to slightly above 100 percent of GDP (in present value terms), using the standard 5 percent discount rates that apply in the IMF/World Bank debt sustainability framework for low-income countries.

Fitch notes that IMF support for Ghana will likely depend on government’s ability to show a path toward bringing the present value of debt to 55 percent of GDP over the forecast horizon, on the basis of the IMF/World Bank debt sustainability analysis and the ability of official bilateral creditors to provide financing assurances in the context of the Common Framework of external debt restructuring that authorities have requested.

Once Fitch receives satisfactory confirmation that Ghana has settled all the missed payments, it said it will assign Ghana’s LTLC IDR based on a forward-looking assessment of its willingness and capacity to honour its local currency debt.

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