Ghana has a greater than 50% danger of missing its debt repayment deadline, according to rating agency Fitch.
The rating agency claims that if debt restructuring occurs as a result of discussions with the International Monetary Fund for a $3 billion package, the country’s sovereign credit rating might be further downgraded, bringing it closer to default.
Does this imply that your investments in Government of Ghana assets like Treasury bills and notes would be impacted if the nation fails to fulfill its debt?
Another query is if President Akufo-Addo was truthful when he said that there would be no “haircut” for domestic debt.
According to Bloomberg, Ghana’s creditworthiness could be reduced from “CC” to “RD.” According to the downgrade, which was made in response to growing financial strains including rising interest rates on domestic debt and a protracted absence of access to the Eurobond markets, Ghana is now more likely to pursue a debt restructuring.
According to many observers, a debt restructuring may result in a “haircut,” or a review that lowers the current interest rates on government instruments like bills and bonds. Alternately, the investments’ tenor could be lengthened.
Fitch reduced Ghana’s Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) in September 2022 from “CCC” to “CC,” deeper junk status.
Jan Friederich, the head of EMEA Sovereign Ratings, stated that if negotiations with the IMF resulted in a debt restructure, the nation ran the possibility of receiving a further downgrading.
Bloomberg quotes Mr. Friederich as saying that “if a debt restructure is part of the arrangement with the IMF, then, in terms of default risk, that will override any advantage from the finance help that Ghana might receive from the IMF.”
Furthermore, he added, “a restructure would probably result in the appropriate rating being placed in restrictive default.”
A bond or loan issuer who, in Fitch’s assessment, “has encountered an uncured payment default or distressed debt exchange” but hasn’t filed for bankruptcy or taken other administrative action is given that rating.
Default Risk
In order to stabilize the economy, which has seen a sharp depreciation of its currency, the cedi, as well as skyrocketing inflation and interest rates, the nation formally launched talks with the IMF in September 2022 for the extended loan facility programme.
This came after it made up to a 30% reduction in its 2022 discretionary spending. This did not stop investors from selling off Ghana’s Eurobonds, either.
Local Debt
In September 2022, Bloomberg stated that Ghana was considering restructuring a portion of its 190.3 billion domestic debt ($13.6 billion) as part of its discussions with the IMF. In October 2023, a committee was established to gather opinions from bondholders over a debt management plan.
Since then, some investment banks have informed their clients of their intentions and advised them against selling or liquidating their investments because they risk losing their value.
Jan Friederich added, “We would be looking at which part of the debt will be affected.
There are still unanswered uncertainties regarding the choices they will make regarding the inclusion of local currency or foreign currency debt; for the time being, we anticipate that both will be included.
The World Bank partially insured Ghana’s 2030 dollar bonds, so they might be exempt from any restructuring, he said.
Source: newsthemegh.com