IMF upgrades Ghana to moderate risk of debt distress

The International Monetary Fund (IMF) has upgraded Ghana's debt risk rating from high to moderate, indicating a sustained improvement in the country's debt trajectory. In its fifth review under the Economic Credit Facility (ECF), the IMF staff maintained a high-risk rating due to uncertainties surrounding the exchange rate and gold prices.

However, with improved macroeconomic stability, a clearer fiscal outlook, and a mechanical signal, the IMF now plans to downgrade Ghana's risk rating to moderate, according to its Country Report on Ghana.

Despite this upgrade, the IMF acknowledges that the space under the external debt-service-to-revenue ratio remains limited, meaning debt vulnerabilities persist. Debt vulnerabilities continue to be elevated, requiring ongoing vigilance. The IMF's analysis shows that Ghana's debt dynamics are particularly sensitive to external shocks, given the country's heavy reliance on gold and other commodity exports.

Stress tests conducted by the IMF indicate that adverse export and commodity price shocks could push solvency and liquidity indicators above their thresholds for an extended period.

The exchange rate plays a crucial role as a transmission channel, owing to the substantial portion of FX-denominated external debt and non-resident holdings of domestic debt. Contingent liabilities, including fiscal risks from the energy sector, financial sector recapitalization needs, and quasi-fiscal activities, pose another significant source of downside risk.

The IMF emphasizes the importance of implementing fiscal and sectoral reforms, maintaining adequate external buffers, preserving exchange rate flexibility, and diversifying exports to mitigate these risks.

The Fund highlights the priority of completing restructuring negotiations with residual external commercial creditors and signing the remaining bilateral agreements to further strengthen Ghana's debt situation.