Fitch Ratings has downgraded Ghana's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to 'CCC' from 'B-'. 

The downgrade reflects deterioration of Ghana's public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity. In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022.

The government has requested support from the IMF, which is likely to lead to additional financing from the IMF and other multilateral lenders. However, the government's high interest costs and structurally low revenue as a percentage of GDP have increased the likelihood that IMF support would necessitate some form of debt treatment, although this is not our main scenario. The high interest burden on local-currency debt also means that the inclusion of a domestic debt treatment cannot be ruled out.

In July 2022, the authorities reversed a long-standing position against seeking IMF support.

Fitch believes that a deal with the IMF is likely within the next six months. We estimate that a programme could disburse as much as USD3 billion and unlock budget support from other multilateral lenders.

"However, the timing of such a deal is uncertain and would be dependent on the government's ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics," Fitch said.

The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs.

Fitch estimates that Ghana faces $2.75bn of external debt servicing in 2022, including amortisation and interest, and $2.8bn in 2023. “Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government.”

“In 2022, we expect that the government will meet its external debt obligations, in part, through a combination of a $750m term loan from the African Export-Import Bank (BBB), $250m in syndicated loans from international commercial banks, and up to $200m from the government's sinking fund,” Fitch said.

The 2022 mid-year policy review indicates that the government expects to source the rest from the IMF and other multilateral lenders. In the absence of an approved programme by the end of the year, the government would have to draw more heavily on its international reserves, which were $7.6bn, including oil funds and encumbered assets, as of June 2022.