S&P, on 2 June, cut the ratings of two more Ghanaian Eurobonds to D from CC after the country missed principal and interest payments on these bonds (the USD1bn 2029 and USD1bn 2049 bonds).
At the same time, the agency affirmed its SD/SD long- and short-term foreign currency and its CCC+/C long- and short-term local currency sovereign credit ratings on Ghana. The outlook on the long-term currency rating is Stable, reflecting S&P’s view that the settlement of Ghana’s domestic bond exchange programme on 21 February improved the government’s refinancing profile and reduced its cost of debt.
The agency further noted that the conclusion of the settlement led it to consider the local currency default as cured, even though the government is still negotiating with hold-out groups of domestic creditors. S&P estimates that the total amount of foreign currency debt subject to restructuring stands at USD20bn, or just under 30% of GDP, of which USD14.6bn consists of commercial obligations. It added that if the creditor committee agrees to write down 30% of the principal value of this debt and defer and capitalise interest payments on all-non MLI foreign currency debt until May 2026, it projects that gross general government debt would decline to 64% of GDP by 2025, from 94% at the end of 2022.
Achieving this sharp reduction in debt depends on an ambitious consolidation of the primary fiscal position, by nearly 5pp of GDP as well as an economic recovery that leads to a gradual resumption of GDP growth. S&P added that even under this scenario, it does not expect Ghana to reduce its overall government debt to 55% of GDP by 2028 without higher write-downs, a stronger real exchange rate, lower domestic borrowing costs, or even higher economic growth.
Senegal
S&P affirmed Senegal’s B+/B long- and short-term foreign and local currency sovereign ratings, with a Stable outlook. The Stable outlook reflects the balance of risks between the country’s high fiscal and external imbalances, and strong medium-term economic prospects and expected narrowing of its twin deficits. S&P observed that short-term external pressures remain high, with the current account deficit likely staying above 12% of GDP this year, while large budgetary deficits in recent years, exacerbated by measures to cushion the impact of the pandemic and high inflation, led to a rise in gross general government debt to about 68% of GDP in 2022, limiting the country’s ability to absorb shocks. The agency expects the start of oil and gas production and public capital spending to support economic growth average of about 9% over 2023-24, which, helped by the new IMF program, should reduce external and fiscal imbalances through 2026.
The rating agency’s review comes as the country’s political backdrop has become increasingly volatile. Since opposition leader Ousmane Sonko was sentenced on 1 June to two years in prison for ‘corrupting youth’, effectively ruling him out from participating in the 2024 presidential elections, violent protests have resulted in at least 15 deaths. Several countries, including the US, have called for peace (Associated Press).
Uganda
S&P affirmed Uganda’s B/B long- and short-term foreign and local currency sovereign credit ratings and maintained the Negative outlook. S&P said that the Negative outlook reflects its view that Uganda’s large fiscal and external deficits will persist, increasing the sovereign’s vulnerability to challenging domestic and external financing conditions, despite the IMF support program. The agency added that the rating reflects revenue underperformance and difficult financing conditions that are resulting in funding gaps and high debt-service costs as well as sizable external imbalances.
due to oil related capital imports. External indebtedness and financing needs are projected to continue rising sharply and weigh on external buffers, with foreign exchange reserves forecast to fall to less than three months of current account payments by FY2025, down from 4.2 months over the past 15 years. However, Uganda is expected to post strong growth that is forecast to average 5.3% over fiscal years 2023-2026 (FY2020-2022: 3.7%), supported by an IMF program. Medium-term growth prospects also remain positive, supported by investment into oil projects, with oil production expected to begin in FY2026 and peak at 230,000 barrels per day. The onset of oil production is also expected to result in an improvement in Uganda’s fiscal and external positions.
The week ahead will be dominated by PMI releases for May, while several CPI releases are also expected. Amongst these releases, we will be looking to see if the recovery in Ghana’s private sector gathered more momentum and whether Uganda maintained the rapid pace of expansion. In contrast, conditions likely remained difficult in Zambia amid a depreciating exchange rate and tighter monetary policy. Similarly, Kenya’s PMI also likely continue to reflect the challenging conditions. Mauritius, Seychelles and Tanzania are expected to release their CPI prints during the week. In Mauritius, we expect inflation to have eased to 7.8% in May from 8.3% in April. In Seychelles, we expect the stronger exchange rate to have continued to support inflation’s downtrend to 0.4% y/y in May from 0.6% in April. Finally, Tanzania’s inflation is also likely to have moderated slightly to 4.2% in May from 4.3% in April as fuel price hikes over the month are likely to have partially offset easing food inflation.
