Ghana’s Bonds Slump After Outlook Revised to Negative

Ghana’s bonds dropped after Fitch revised it’s rating outlook to negative from stable on Tuesday. The rating action came as the country’s public finances deteriorated as a result of the ongoing pandemic and as the government’s fiscal consolidation efforts face delays. The sovereign is rated B by Fitch due to its high leverage and low revenue base. According to the rating agency, Ghana will not be able to absorb further shocks for an extended period. The total cash deficit reached an estimated 14% of GDP in 2020. The forecasted deficit of 8.3% in 2022 is higher than the median of 4.8% for B rated countries. The nation also has an estimated $3-4bn liabilities in the energy sector, which accounts for 2-3% of 2021 GDP. Ghana’s government debt is expected to rise to 81% of GDP in 2021. The leverage will result in an interest expenditure of 50-53% of revenue in 2021 and 2022, which is higher than the median of 13.2% for the B rated countries. The country’s FX reserves expected at $7.6bn at end-2021 is sufficient for 2.9 months of current external payments and its reserve coverage is lower than rating peers. Despite the difficulties faced, the nation has been successful in arranging funds. It issued $3bn in Eurobonds in March 2021 and has already obtained budget approval to raise another $1bn to cover its upcoming debt of $3.3bn in 2021.