Ghana’s debt outlook improves as Moody’s upgrades rating to Caa1

Investing.com -- Moody’s Ratings has upgraded Ghana’s long-term foreign and local currency issuer ratings to Caa1 from Caa2 and changed the outlook to stable from positive on Friday.

The upgrade reflects improved prospects for debt reduction, with Moody’s projecting Ghana’s public debt ratio to fall below 60% of GDP by the end of 2026. The country is benefiting from greater macroeconomic stability and favorable external conditions, which are supporting more controlled funding costs and foreign exchange reserve replenishment.

Ghana’s economic growth has accelerated following the 2023 domestic debt restructuring, reaching 5.7% in 2024 and 6.3% in the first half of 2025. Moody’s projects average growth to moderate to around 4% to 5% going forward.

The country’s external position has significantly improved, driven by favorable dynamics for its main export commodities – gold and cocoa – and solid remittance inflows. The current account recorded a surplus of 2% of GDP in 2024 and 3.5% of GDP in the first half of 2025, marking a notable change after more than two decades of persistent deficits.

Gross foreign exchange reserves, excluding gold, encumbered assets and petroleum funds, have increased from $2.5 billion at the end of 2023 to $6.0 billion (6.1% of GDP) as of June 2025, with monetary gold reserves adding another $3.2 billion.

Domestic funding costs have decreased substantially, with the 364-day T-bill rate falling to 12.9% as of end-September from 30% at the end of 2024. Moody’s projects interest spending to stabilize around 25-30% of government revenue, down from 47% in 2022 prior to the debt restructuring.

Despite fiscal slippages in 2024, when the central government budget deficit widened to 7.9% of GDP against a target of 4.2%, Moody’s expects the government to meet its primary surplus target of 1.5% of GDP for 2025 and maintain it in 2026.

The administration has taken steps to strengthen fiscal controls through amendments to the Public Financial Management Act in March 2025, which introduce binding operational rules designed in consultation with the IMF. These include maintaining an annual primary surplus of at least 1.5% of GDP and reducing the public debt-to-GDP ratio to 45% or lower by 2034.

Credit constraints at the Caa1 rating level include the government’s limited financing options, weak debt affordability, and high susceptibility to exchange rate and commodity price volatility.

Moody’s has also revised up Ghana’s local currency and foreign currency country ceilings to B1 and B2 from B2 and B3, respectively.

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