Understanding Sovereign Credit Ratings: Accra Street Journal (ASJ) Intelligence Brief

From AAA to D — how rating agencies assess Ghana’s creditworthiness and why it matters

Executive Introduction

Sovereign credit ratings are assessments by independent agencies—primarily Fitch, Moody’s, and S&P Global—of a country’s ability and willingness to repay its debt obligations in full and on time . These ratings are not academic abstractions. They directly influence the interest rates Ghana pays on its debt, the stability of the cedi, the cost of borrowing for Ghanaian businesses, and the country’s ability to attract foreign investment .

This report explains the fundamentals of sovereign credit ratings: how the major agencies differ, the methodologies they use, the rating scales and what they mean, the factors that drive rating changes, and why all of this matters for Ghana’s economic trajectory.

The evidence suggests that while ratings are informed by objective economic data—GDP growth, debt levels, reserves, inflation—they also incorporate significant qualitative judgement, particularly around institutional quality, governance, and political risk . Understanding this blend of quantitative and qualitative assessment is essential for interpreting why Ghana’s ratings change when they do, and what policymakers can do to improve them.

Part 1: What Are Sovereign Credit Ratings?

The Definition

A sovereign credit rating is an independent, forward-looking assessment of a country’s creditworthiness—its ability and willingness to service its financial obligations . Rating agencies evaluate a country’s historical economic performance, its current fiscal position, and its future prospects to assign a rating that signals default risk to investors .

The Three Major Agencies

Three agencies dominate the sovereign rating industry globally, though smaller agencies such as Scope have gained limited coverage in recent years .

The Distinction Between Investment Grade and Speculative Grade

Ratings are divided into two broad categories based on perceived credit risk :

Investment Grade (lower credit risk):

Speculative Grade (higher credit risk):

Sources: The High Street Business

Investment grade status is a critical threshold because many institutional investors—including pension funds, insurance companies, and sovereign wealth funds—face regulatory or internal restrictions limiting investment in speculative-grade (”junk”) issuers . Another key threshold is B-, as some asset managers are restricted from investing in issuers rated below this level .

Ghana’s current position as of May 2026:

All three agencies place Ghana in speculative grade territory. However, the Positive Outlooks from Moody’s and Fitch signal that further upgrades are possible if current reforms are maintained.

Modifiers and Their Meaning

Agencies use modifiers to provide granularity within rating categories .

For Fitch and S&P: Ratings from AA to CCC use “+” or “-” to indicate relative standing. AAA is the highest rating, followed by AA+, AA, AA-, A+, A, A-, and so on down to CCC. Ratings below BB+ are speculative grade.

For Moody’s: Numerical modifiers 1, 2, and 3 are appended to ratings from Aa to Caa. The modifier 1 indicates the issuer is in the higher end of the rating category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates a lower-end ranking. For example, Baa1 is the highest rating within the Baa category, while Baa3 is the lowest rating that still qualifies as investment grade.

Part 2: How Rating Agencies Determine Sovereign Ratings

The Analytical Frameworks

Each agency uses a structured methodology to assess sovereign creditworthiness . While the specific frameworks differ, they share common analytical pillars.

Fitch’s rating framework comprises four analytical pillars :

1. Structural Features

2. Macroeconomic Performance, Policies and Prospects

3. Public Finances

4. External Finances

Fitch uses a quantitative Sovereign Rating Model (SRM) based on 18 variables, each with published weights, to generate a baseline rating. Analysts can then apply a Qualitative Overlay to adjust pillar-level assessments and an overall adjustment to account for factors not fully captured by the model .

S&P’s rating framework comprises five pillars :

• Economic

• Institutional

• Fiscal

• External

• Monetary

S&P publishes six scores for individual pillars, each rated on a scale from 1 (strongest) to 6 (weakest). These are combined in a publicly available matrix to generate an indicative foreign-currency rating, which may then be adjusted up or down to reflect factors not addressed by the core assessment .

Moody’s scorecard comprises four factors :

1. Economic Strength

2. Institutions and Governance Strength

3. Fiscal Strength

4. Susceptibility to Event Risk

Moody’s employs a scorecard to arrive at an indicative rating range based on weighted sub-factors. Final ratings may be positioned within or outside this range based on broader considerations .

Objective vs Judgement-Based Inputs

Sovereign ratings blend objective quantitative analysis with qualitative judgement. This is a critical distinction that is often misunderstood .

Objective inputs (historical data, not involving analyst judgement) include:

Inputs involving rating analyst judgement include:

Source: 

The Role of Judgement

The significant role of subjective input in the rating process is understandable, given the complexity of assessing a sovereign issuer’s ability and willingness to repay its debt . Expert opinion can add valuable insight to data-driven analysis. Fundamentally, there is inevitably an element of judgement in any forward-looking view.

However, this reliance on judgement creates challenges :

• The way subjective input is applied—at multiple points and often with limited visibility—means it is often difficult to trace how certain conclusions are reached, which may lend itself to perceptions of bias.

• Pinpointing the relative contributions of specific rating drivers is difficult using the published criteria of S&P and Moody’s. Fitch provides greater visibility as it publishes the coefficients and factor weights used in its SRM.

Data Gaps and their Impact

A particular issue requiring analyst judgement is data gaps. The challenge of missing or incomplete data in national accounts, fiscal reporting, and external sector statistics is common in frontier economies, including Ghana . In such cases, rating agencies frequently rely on estimates to complete their assessments. Where data limitations are judged to be material, this may lead to downward adjustments within the relevant analytical pillar.

The Determinants of Ghana’s Ratings

Drawing on the frameworks above, the factors influencing Ghana’s sovereign ratings include:

Sources: The High Street Business

The Relevance of the Commonwealth Context

The Commonwealth Secretariat has noted that, as of 2025, 39 of 56 Commonwealth countries held at least one sovereign rating, with coverage widest in Africa (18 rated countries) . Of these, 11 Commonwealth countries are rated investment grade, concentrated among advanced and upper-middle-income economies where resilient policy frameworks and diversified funding bases help absorb shocks .

The Commonwealth’s analysis highlights that “debt alone is not determinative” of ratings. Several investment-grade members carry relatively high government debt-to-GDP ratios but remain strongly rated due to deep domestic markets, credible institutions, robust revenues, diversified funding, and the capacity to borrow in local currency . In essence, the institutional environment determines how much risk a given debt level represents.

The Commonwealth’s conclusion for reform-minded countries: “Credible fiscal consolidation, deeper domestic markets, transparent debt reporting, stronger SOE governance, and active investor relations form a coherent package that supports rating stability and upgrade potential across diverse contexts” .

Part 3: The Rating Process

Surveillance and Review Cycles

Ratings are not static. Agencies continuously monitor rated sovereigns and typically conduct formal reviews on an annual or semi-annual basis. However, they can initiate a rating change at any time if events warrant—as was the case during Ghana’s 2022 debt crisis, when ratings were downgraded multiple times within months .

Rating Announcements and Outlooks

When agencies announce rating decisions, they typically provide:

• Rating action: Upgrade, downgrade, or affirmation

• Outlook: Positive, negative, or stable

• Rationale: A detailed explanation of the factors driving the decision

• Sensitivities: Conditions that could lead to future rating changes

The Outlook is a forward-looking indicator. A Positive Outlook suggests a rating could be upgraded in the medium term (typically 12-24 months); a Negative Outlook suggests a downgrade is possible. A Stable Outlook indicates the rating is likely to remain unchanged.

Rating Triggers

Common triggers for rating actions include:

• Material changes in fiscal policy or debt trajectory

• Shocks to economic growth or inflation

• Balance of payments crises or reserve depletion

• Political instability or policy reversals

• Natural disasters or commodity price collapses

• Changes in global financial conditions

Part 4: How Ratings Affect Ghana

Borrowing Costs

The most direct and measurable effect is on the interest rates Ghana pays when it borrows. A higher rating means lower risk perception, which translates into lower yields on bonds and lower interest on loans .

A study examining the impact of investment-grade upgrades found that “upgrades to investment grade status reduce corporate debt spreads substantially” . The estimated size of the contribution from a rating change of one notch (36 basis points) was similar to that obtained in a World Bank study . Moving from the average speculative grade rating to the lowest investment grade category (BBB-)—a five-notch upgrade—tends to reduce corporate spreads by about 180 basis points .

For Ghana, each notch improvement in rating translates directly into reduced interest costs on new borrowing, freeing fiscal space for development spending.

Exchange Rate Stability

Academic research confirms that sovereign credit rating events have measurable, statistically significant impacts on foreign exchange markets . A study using entropy balancing—a treatment effect methodology that addresses self-selection and endogeneity biases—found robust evidence that “a positive (negative) sovereign credit rating event significantly increases (decreases) on average exchange rates, with a larger magnitude for negative events” .

The effect remains significant under flexible (but not under fixed) exchange rate regimes and displays asymmetries related to the size of the rating event. Notably, “only negative large (i.e., above one notch) rating events trigger a significant response of exchange rates” .

There are also important nonlinearities related to the initial value of the rating. The impact of positive (negative) rating events is stronger in absolute value if ratings are [lower/higher—text cut off] .

Foreign Direct Investment

Research has confirmed a relationship between sovereign credit ratings and foreign direct investment inflows. A study using one-way ANOVA analysis found that “after the Asian crisis, countries with a high sovereign credit rating were characterised by relatively higher inflows of foreign direct investment” .

Additionally, better sovereign credit ratings lead to an increase in foreign investments in the host country’s banking sector, as they may be linked with greater financial stability. This effect is mitigated in countries with tighter restrictions on banking activities and more independent supervisors .

The Portfolio Balance Channel

Research from Colombia’s central bank examined how shifts in portfolio composition affect exchange rates, using sovereign credit ratings and outlook changes as instruments . The findings indicate that shifts in portfolio balances affect long-term (5-year) risk premiums for up to five months before effects subside. Stronger and more persistent portfolio effects occur when US ratings increase relative to Colombian ratings—a finding relevant to Ghana given its reliance on foreign-denominated debt .

Part 5: Rating Agencies and Ghana — A Historical Perspective

The Pre-Crisis Period (2000s–2021)

For nearly fifteen years, Ghana maintained ratings in the B range (B, B+, B-), placing it in speculative grade but above the distressed levels seen during the crisis . The country’s record of democratic transitions, economic growth, and debt management supported this standing.

The Crisis Downgrades (2022)

The 2022 debt crisis triggered multiple, rapid downgrades :

By the end of 2022, Ghana had fallen into the CCC/CC range—deep into speculative grade, with some agencies assigning a “Selective Default” (SD) rating following the Domestic Debt Exchange Programme .

The Recovery Upgrade (2025–2026)

The recovery since 2025 has been steady:

The May 2026 Fitch upgrade to B with a Positive Outlook marked Ghana’s highest rating level since June 2021—a cumulative five-notch recovery from the depth of the crisis .

Part 6: Limitations and Criticisms

Subjectivity and Lack of Transparency

The significant role of judgement in rating methodologies, while necessary, can lead to perceptions of bias. As noted in the FinDevLab working paper, “the way subjective input is applied—at multiple points of the rating process and often with limited visibility—means that it is often difficult to trace how certain conclusions are reached” .

Pro-Cyclicality

Ratings are often criticised for being pro-cyclical—downgrading countries during crises when they need access to capital most, and upgrading them during booms when access is less critical. This pattern was evident during Ghana’s 2022 crisis, as rapid downgrades accelerated capital outflows and worsened the currency crisis.

Limited Coverage of Climate and Social Risks

Traditional rating methodologies have been slow to incorporate climate vulnerability and social risks—both material for Ghana. The Commonwealth Secretariat notes that “climate vulnerability, remoteness, and market size shape funding strategies and rating outcomes” for small island economies and climate-exposed countries . There is a growing call for rating methodologies to give greater weight to these factors.

“Africa Discount”

Ghana and other African countries have long argued that rating agencies systematically underestimate the economic potential of the continent and overestimate political and governance risks relative to similarly rated peers elsewhere. The debate over whether African countries are systematically under-rated—and at what cost—continues.

Part 7: Outlook for Ghana’s Ratings

Drivers of Potential Upgrades

Fitch has indicated that a further upgrade could occur if Ghana maintains “continued fiscal prudence underpinned by improved public financial management, further normalisation of macroeconomic conditions evidenced by an expected decline in average inflation, and a further building of external buffers” .

Specific positive factors include:

• Continued debt-to-GDP reduction towards the projected 46% by 2027

• Further accumulation of foreign reserves beyond $12.3 billion

• Sustained primary surpluses

• Continued cedi stability and low inflation

Drivers of Potential Downgrades

Conversely, Fitch warned that “weaker fiscal performance, rising debt service costs, or failure to build external reserves could lead to a downgrade in future” . Given that Ghana’s interest-to-revenue ratio is expected to remain around 20% through 2027, any significant fiscal slippage would be reflected in rating assessments.

The Investment Grade Horizon

While investment grade status (BBB- or Baa3) is not imminent, the Commonwealth Secretariat’s analysis suggests that “credible fiscal consolidation, deeper domestic markets, transparent debt reporting, stronger SOE governance, and active investor relations form a coherent package that supports rating stability and upgrade potential” . If Ghana maintains reform discipline, continued rating improvement—and eventually a path toward investment grade—is possible over the medium term.

Conclusion: Ratings as Accountability Mechanism

Sovereign credit ratings are not arbitrary verdicts imposed from abroad. They are structured assessments of a country’s economic fundamentals and policy credibility, based on a blend of quantitative data and qualitative judgement. For Ghana, ratings directly affect borrowing costs, exchange rate stability, foreign investment, and corporate credit conditions.

The May 2026 upgrade from B- to B with a Positive Outlook is a significant achievement, reflecting the cumulative effect of debt restructuring, fiscal consolidation, currency stabilisation, and reserve accumulation . But ratings can change—and will if reforms falter.

The Commonwealth Secretariat’s conclusion is instructive: where fiscal anchors are credible, reforms are well signalled, and buffers are prudently managed, market access has held up. Where anchors are uncertain, maturities bunch, or foreign exchange exposures are high, conditions tighten .

For Ghana, the path forward is clear: credible fiscal consolidation, deeper domestic capital markets, transparent debt reporting, stronger governance of state-owned enterprises, and active investor relations will support rating stability and upgrade potential.

The rating agencies provide the report card. Ghana’s policymakers write the underlying performance.

Quick Reference: Sovereign Credit Ratings at a Glance

Last Updated on June 10, 2026 by Samuel Kwame Boadu

Samuel Kwame Boadu

Samuel Kwame Boadu is a Ghanaian media entrepreneur and storyteller with a passion for amplifying urban voices and uncovering everyday truths. He is the Editor-in-Chief and Founder of Accra Street Journal, a dynamic digital platform dedicated to capturing the pulse of Ghana’s capital—its people, culture, challenges, business, sports and innovations.

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