After an initial hit from the impact of COVID-19 on the global market, Angola’s fortunes, which depend on oil prices, have reversed, reversing the position of Africa’s perennial investor, the Ghana darling. Angola has pursued ambitious reforms, spurred by sovereign credit rating downgrades and falling bonds early in the pandemic, securing rating upgrades in recent months and placing its bonds among the best performing in Africa.
But over the same period, Ghana has seen investor confidence decline, its credit rating deteriorate and its bonds hammered. “It has become evident since the middle of last year that … investor sentiment towards Ghana has shifted,” said Yvonne Mhango, Sub-Saharan Africa Economist at Renaissance Capital. .
Last week Ghana’s credit rating was downgraded https://www.Reuters.com/world/africa/moodys-downgrade-whacks-ghana-dollar-bonds-2022-02-07 to very high risk by Moody’s , prompting a furious response https://www.reuters.com/world/africa/after-moodys-cut-ghana-finance-ministry-says-ratings-agencies-biased-against-2022-02-07 from his Ministry of Finance to move, which placed in category C with countries like Ethiopia, Zambia and Mozambique. However, not everyone shares Moody’s bleak outlook as on the very day of its downgrade, S&P Global Ratings reaffirmed Ghana’s B- rating with a stable outlook.
This puts Ghana on the same S&P rating as Angola, which was upgraded last week from “CCC+” to “B-“, after Fitch in January and Moody’s in September. “The positivity in Angola’s case is due to the fact that they stuck to their fiscal consolidation program even during the pandemic,” Renaissance Capital’s Mhango told Reuters.
S&P noted that the Angolan government’s debt-to-GDP ratio was on track to drop from 131% in 2020 to 68.5% this year thanks to a stronger currency and higher oil prices. Since yields hit around 30% in March 2020 amid a pandemic-induced market rout, Angolan bonds have outperformed B-rated sovereign debt tracking indices, according to Refinitiv data.
Angolan Finance Minister Vera Daves de Sousa told Reuters in January that she expected a return https://www.Reuters.com/article/angola-economy-idUKL8N2U43AC to international capital markets this year, seeking to cover part of its external $4 billion. financing needs through the sale of bonds. Kevin Daly, an emerging market debt investor at abrdn, which holds Angola’s 2029, 2048 and 2049 bonds, said a new issue of 10- or 15-year bonds would be oversubscribed.
“You’ll see the request anywhere between two and three times.” DEBT DOUBTS
Ghana, meanwhile, is in a “race against time” to reduce its fiscal deficit, Abrdn’s Daly said. Many analysts fear a debt crisis https://www.Reuters.com/article/ghana-debt-idUSL8N2TS5AW, given the government’s struggle with a double-digit budget deficit and high inflation, lack of access to the market and what some say is unrealistic about insufficient revenue forecasts and spending cuts.
Ghana is effectively shut out of financial markets, with yields on its international bonds above 10% since the fourth quarter of 2021 and now at 13%. Its 10-year local sovereign bonds yield nearly 22% and its debt prices fell across the curve after Moody’s downgraded Ghana’s rating from B3 to CAA1. In a statement on Sunday, Ghana’s finance ministry said it had appealed against Moody’s downgrade and said the ratings agency’s concerns had largely been addressed by the fiscal consolidation measures outlined. recently in its 2022 budget “anchored on debt sustainability and a positive primary balance”.
The International Monetary Fund (IMF) forecast in October that Ghana’s debt-to-gross domestic product ratio would reach 84.9% in 2022, up from 83.5% in 2021. And Ghana’s 2022 budget, which was approved in November showed spending measures in response to COVID-19 appeared to have turned into permanent measures, said Ray Jian of Amundi, Europe’s largest asset manager.
“(They) continue to project a fairly high deficit again, with an adjustment promised only in the future,” he said, adding, “That’s what lost market confidence.” For those sticking to investing in Ghana rather than Angola, however, some say it may just be a matter of waiting.
“Ghana has a much more diversified revenue base and does not face immediate pressures with external debt service payments,” said Razia Khan, chief economist for Africa and the Middle East at Standard. Chartered, comparing it to Angola. Fitch calculates that Ghana’s external sovereign interests and debt payments amount to $2.7 billion this year, while he puts Angola’s at $5.6 billion.
“There’s no reason to think that Ghana wouldn’t have the space to get by,” Khan added.
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