REFILE-ANALYSIS-Angola outpaces Ghana in pandemic reversal of fortune

(Changes source to Reuters News)

* Oil producing Angola hit hard early in pandemic

* Angolan reforms have driven investor confidence

* Ghana’s debt hit by credit ratings downgrades

LONDON, Feb 9 (Reuters) - After an initial hit from the global market impact of COVID-19, oil price-dependent Angola’s fortunes have reversed, turning the tables on Africa’s perennial investor darling Ghana.

Angola has ploughed ahead with ambitious reforms, spurred by sovereign credit rating downgrades and tumbling bonds early in the pandemic, earning rating upgrades in recent months and placing its bonds among Africa’s top performers.

But over the same period, Ghana has seen investor confidence wane, its credit ratings deteriorate and its bonds hammered.

“It’s been evident from the middle of last year that ... the sentiment towards Ghana from investors has turned,” said Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital.

Last week Ghana's credit rating was cut here to very high risk by Moody's, prompting a furious response here from its finance ministry to the move, which placed it in the C ratings category with countries such as Ethiopia, Zambia and Mozambique.

However, not everyone shares Moody’s gloomy outlook as on the same day as its downgrade, S&P Global Ratings reaffirmed Ghana’s B- rating with a stable outlook.

That puts Ghana on the same S&P rating as Angola, which was last week upgraded to “B-” from “CCC+”, following Fitch in January and Moody’s in September.

“Positivity in Angola’s case is because they have stuck through their fiscal consolidation programme even through the pandemic,” Renaissance Capital’s Mhango told Reuters.

S&P noted that the Angolan government’s debt-to-GDP ratio was poised to shrink 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, Angola’s bonds have outperformed indices tracking sovereign B-rated debt, Refinitiv data shows.

Angola's finance minister Vera Daves de Sousa told Reuters in January that it is planning a return here to international capital markets this year, looking to cover part of its $4 billion external funding needs through bond sales.

Kevin Daly, an emerging market debt investor at abrdn, which owns Angola’s 2029, 2048 and 2049 bonds, said a new issue of 10 or 15-year bonds would be oversubscribed.

“You’ll see demand anywhere between two to three times.”


Ghana, meanwhile, is in a “race against time” to reduce its fiscal deficit, abrdn’s Daly said.

Many analysts fear a debt crisis here, given the government's struggle with a double-digit fiscal deficit and high inflation, a lack of market access and what some say are unrealistic revenue forecasts and insufficient 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 local 10-year sovereign bonds yield nearly 22% and its debt prices fell across the curve after Moody’s cut Ghana’s rating from B3 to CAA1.

In a statement on Sunday, Ghana’s finance ministry said it had appealed against the Moody’s downgrade and said the rating agency’s concerns were largely addressed by 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 will hit 84.9% in 2022, rising from an estimated 83.5% in 2021.

And Ghana’s 2022 budget, which was signed off in November, showed temporary spending measures in response to COVID-19 seemed to have morphed into permanent ones, Ray Jian at Amundi, Europe’s largest asset manager, said.

“(They) continue projecting quite a high deficit number again, with adjustment only promised well into the future,” he said, adding: “That’s what lost the confidence of the market.”

For those sticking to investments in Ghana over Angola, however, some say it may just be a question of waiting.

“Ghana has a much more diversified revenue base and doesn’t 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 sovereign external interest and debt payments amount to $2.7 billion this year, while it puts Angola’s at $5.6 billion.

“There’s no basis for thinking Ghana wouldn’t have the space to just muddle through,” Khan added.

Reporting by Rachel Savage and Karin Strohecker; Editing by Joe Bavier and Alexander Smith