Fitch, a renowned rating agency, has announced its intention to assign a Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to Ghana once the country successfully negotiates and completes the restructuring of its foreign currency-denominated external debt with private creditors.
Currently, Fitch has affirmed Ghana’s rating at ‘Restrictive Default’, indicating that the country is experiencing liquidity pressures.
However, upon completion of the external debt treatment, Fitch anticipates upgrading the LTLC IDR, potentially leading to reduced liquidity pressures and restored macroeconomic stability.
This, in turn, would significantly lower debt interest costs.
Fitch’s proprietary Sovereign Rating Model has assigned Ghana a score equivalent to a rating of ‘B-‘ on the Long-Term Foreign-Currency IDR scale.
Nevertheless, the rating agency’s sovereign rating committee has opted not to utilize the model and Qualitative Overlay to explain the ratings.
For sovereigns rated ‘CCC+’ and below, Fitch assumes a starting point of ‘CCC+’ for determining the Country Ceiling.
The Country Ceiling Model has produced a starting point uplift of +0 notch above the IDR. Additionally, Fitch’s rating committee has applied a +1-notch qualitative adjustment to the model result under the Balance of Payments Restrictions pillar.
The assigned Country Ceiling of ‘B-‘ reflects that the private sector has not been prevented or significantly impeded from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.
This indicates that Ghana’s private sector has maintained access to foreign currency, enabling them to meet their debt obligations.
Fitch’s decision to assign a LTLC IDR to Ghana is contingent upon the successful completion of the external debt restructuring process. Upon achieving this milestone, Ghana’s rating is likely to be upgraded, reflecting an improved macroeconomic stability of the Country.
-BY Daniel Bampoe