Ghana’s sovereign rating downgrade is anything but a surprise. For several weeks, it had been awaited by market operators. The ax fell Friday night.
The agency S&P Global Ratings downgraded the Ghanaian Treasury’s rating on foreign currency borrowings from “B-/B“ to “CCC+/C”. Accra thus finds itself on the penultimate step of payment default.
S&P Ratings is pessimistic about the development of the country’s medium-term economic situation by backing a negative outlook on Ghana’s new sovereign rating. The agency’s analysts justify the decision by the deterioration of the budgetary situation and the drying up of foreign currency reserves, a cocktail that could compromise the country’s ability to honor its commitments to its creditors. After having sworn not to knock on the door of the IMF presented in Accra as the devil, the government quickly returned to the principle of reality. This is how he has been negotiating for several months an agreement with the Fund, “very difficult” negotiations which come up against the counterparts of structural reforms.
The Ghanaian economy is plunged into difficulties exacerbated by the consequences of the war in Ukraine and double-digit inflation which is undermining the living conditions of the population. Capital outflows from non-residents and the surge in the bill for imports of petroleum and food products have sagged the cushion of the country’s foreign exchange reserves.
These pressures coincide with rate hikes by the US Federal Reserve, contributing to the 27% depreciation of the cedi (national currency) against the US dollar since the start of the year. The weak exchange rate, in turn, drives up inflation, which stood at nearly 30% at the end of June, its highest level in 21 years.