Moody’s changes Ghana’s outlook to negative from positive, affirms B3 rating

Moody's Investors Service says the country’s negative outlook reflects its elevated debt burden and weak debt affordability

A high debt burden, revenue underperformance and its heavy reliance on international capital flows, worsened by the COVID-19 pandemic, have negatively affected Ghana’s creditworthiness, Moody’s Investors Service said in a report.

However, the country stands to benefit from stable prices for commodities like gold and cocoa, the ramping up of oil and gas production and a more secure power supply in the country.

“The negative outlook reflects the rising risks that the pandemic poses to Ghana’s funding and debt service due to the country’s exposure to shocks because of its high dependence on external financing,” says Kelvin Dalrymple, vice president and senior credit officer at Moody’s and co-author of the report.

“We would consider stabilizing the outlook if the government’s fiscal consolidation progress provides confidence it can continually meet its large funding needs at affordable rates.

“Positively, Ghana’s economy, comparable with many regional peers, is gradually recovering from the coronavirus shock after 1.9% growth in 2020.”

Moody’s expects the country’s real GDP growth of 4.1% in 2021 as stronger oil prices support increased real GDP output, and loosening coronavirus-related restrictions provide additional support to the economic recovery.

B3 rating

Moody’s affirmed the country’s long-term local and foreign currency issuer and foreign currency senior unsecured bond ratings at B3 and changed the outlook to negative from positive.

Moody’s has concurrently affirmed the local and foreign currency senior unsecured MTN ratings at (P)B3 and the rating of the bond enhanced by a partial guarantee from the International Development Association (IDA, Aaa stable) at B1.

The decision to change the outlook to negative reflects the rising risks, ultimately emanating from the coronavirus outbreak, to Ghana’s funding and debt service, with financing beyond immediate official creditor emergency support looking increasingly vulnerable.

The outbreak has caused an unprecedented shock across a wide range of global sectors, markets and regions. Moody’s views it as a social risk under its ESG framework, given the implications for public health and safety and, indirectly, sovereigns’ economic and fiscal strength.

Ghana is particularly vulnerable to these shocks, due to high reliance on external financing both in local and in foreign currency, and very weak debt affordability.

However, while financing pressures are rising, they are not yet acute, and Ghana has emerging strengths that were previously reflected in the positive outlook assigned in January this year.

The affirmation of the B3 rating balances rising financing pressures and longstanding weaknesses relating for example to high debt and revenue underperformance, against those positive features exemplified in a return to primary surpluses and smoothing of the debt maturity profile, an improving – albeit still fragile – current account position, and the restoration of power supply and renewed infrastructure investment.

Should Ghana pass through the crisis with a contained weakening in debt, liquidity and external metrics, those growing underlying strengths could be expected to dominate the profile once again, Moody’s added.

The rating agency said 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.

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