The International Monetary Fund (IMF) has upgraded Ghana’s risk of debt distress from high to moderate, citing sustained improvements in the country’s debt trajectory, macroeconomic stability and exchange rate conditions.

The upgrade marks a significant improvement in Ghana’s debt sustainability outlook after years of elevated fiscal and debt pressures.

In its latest Country Report on Ghana, following the fifth review under the Extended Credit Facility (ECF) programme, the IMF said all key debt indicators had fallen below their respective thresholds.

At the previous review, however, IMF staff retained Ghana’s high-risk classification despite the improved indicators, applying judgement because of uncertainties surrounding the exchange rate and gold prices.

The Fund said those concerns had since eased sufficiently to allow it to remove the judgement and align Ghana’s risk rating with the mechanical signal from the Debt Sustainability Analysis (DSA).

“With continuing macroeconomic and exchange rate stability, and a clearer fiscal outlook, the IMF Staff now proposes to remove this judgement and upgrade Ghana to moderate risk of debt distress, consistent with the mechanical signal,” the Fund stated.

The IMF, however, cautioned that the improvement should not lead to complacency, noting that Ghana’s debt vulnerabilities remain elevated.

In particular, it said the country has limited room under the external debt-service-to-revenue ratio, leaving Ghana vulnerable to potential shocks that could weaken its capacity to meet external obligations.

The Fund identified Ghana’s dependence on gold and other commodity exports as a major source of vulnerability.

Queen mother performs traditional rites to open harvest, sale of yams at Atebubu

“Debt dynamics remain sensitive to external shocks given Ghana’s reliance on gold and other commodity exports,” it said.

According to the IMF, stress tests conducted under the DSA indicate that adverse shocks to exports and commodity prices could push both debt solvency and liquidity indicators above their respective thresholds for an extended period.

The exchange rate also remains a key risk, largely because a significant proportion of Ghana’s external debt is denominated in foreign currencies, while non-residents hold a substantial amount of domestic debt.

A sharp depreciation of the cedi could therefore increase the domestic-currency value of external obligations and place additional pressure on the country’s debt position.

The IMF also highlighted contingent liabilities as another major downside risk to Ghana’s fiscal outlook.

It identified potential fiscal pressures from the energy sector, the recapitalisation needs of financial institutions and quasi-fiscal activities as areas requiring close monitoring.

“These risks underscore the importance of fiscal and sectoral reforms, adequate external buffers, exchange rate flexibility, and efforts to diversify exports,” the Fund said.

The IMF therefore urged the government to maintain the reform momentum and strengthen the foundations underpinning the recent improvement in debt sustainability.

It also stressed the need to complete negotiations with remaining external commercial creditors and sign outstanding bilateral agreements as part of efforts to fully conclude Ghana’s debt restructuring.

The upgrade to moderate risk represents a major improvement from the high-risk classification that accompanied Ghana’s recent debt crisis and restructuring process.

However, the IMF’s assessment suggests that the country’s improved position remains dependent on continued fiscal discipline, prudent debt management and the successful implementation of structural reforms.

The Fund indicated that maintaining these reforms would be critical to ensuring that Ghana’s debt dynamics remain on a sustainable path and that the gains achieved through the ongoing economic recovery are not reversed by future external or domestic shocks.