The Reasons Behind S&P Global Ratings' Upgrade of Ghana’s Credit Rating

International credit rating agency S&P Global Ratings has elevated Ghana’s sovereign credit rating from ‘Selective Default’ (SD) to ‘CCC+’, acknowledging the country’s progress in debt restructuring under President John Mahama’s administration.

The rating upgrade, which was announced on Friday, follows just 122 days after Mahama took office in December 2024. S&P attributed the positive revision to Ghana’s advances in negotiating with commercial creditors, such as the successful Eurobond exchange completed in October 2024, and the imminent conclusion of loan restructuring discussions with external lenders.

Stable Outlook for Ghana’s Credit

Despite the upgrade, S&P has maintained a stable outlook for both Ghana’s foreign and local currency ratings. The agency highlighted several factors contributing to the positive outlook, including “supportive economic growth, ongoing fiscal reforms, and an improved external position.” However, S&P did raise concerns about persistent risks related to high debt servicing costs and the potential for weak financial management during election periods.

“The upgrade reflects the government’s recent efforts to restructure remaining commercial debt,” S&P explained. “We understand that the government is close to finalizing offers to restructure loans with external creditors, primarily commercial banks.”

Economic Recovery Amid Ongoing Challenges

Ghana’s external economic indicators have shown marked improvement, with gold export earnings surging by 53.2 percent in 2024 and foreign exchange reserves increasing to nearly $4.6 billion. Additionally, inflation, which remains high at 21.2 percent, is gradually decreasing thanks to the strengthening of the cedi and more stable energy prices.

However, challenges remain. S&P pointed out that Ghana’s debt sustainability is still vulnerable to exchange rate volatility, as external debt constitutes 62 percent of government liabilities. The agency also flagged concerns over weaknesses in tax administration and the risk of fiscal slippage, particularly during election cycles.

Mahama’s Reform Agenda and Economic Strategy

Since President Mahama took office, his administration has focused on reducing expenditures, implementing IMF-backed fiscal reforms, and making legislative adjustments, including amendments to the Public Financial Management Act. The government has also committed to addressing arrears that emerged after the 2024 elections, although an official audit is still underway.

S&P acknowledged Ghana’s resilient growth, forecasting a 5.7 percent GDP growth for 2024, driven by recoveries in the industrial and services sectors. However, it also cautioned that the country’s cocoa production faces long-term challenges, particularly due to illegal gold mining that harms farmland and diverts labor away from agricultural activities.

Future Risks and Opportunities for Ghana

Although the stable outlook suggests cautious optimism, S&P noted that Ghana’s credit rating could face downward pressure if fiscal discipline weakens or if debt servicing becomes more burdensome. On the other hand, if the country accelerates reserve accumulation or strengthens public financial management, further rating upgrades could be possible.

While the rating upgrade is a significant step in Ghana’s economic recovery, S&P cautioned that “the road ahead remains fraught with challenges,” emphasizing the importance of continued reform and fiscal discipline.