(Bloomberg) -- Moody’s Investors Service downgraded Ghana deeper into junk territory on the likelihood that private creditors will incur steep losses during the government’s planned debt restructuring.

The country’s credit rating was slashed by two levels to Ca, the second-lowest score at Moody’s, according to a statement on Tuesday. That puts Ghana on par with Sri Lanka, which is in default. The downgrade follows plans in Ghana’s proposed 2023 budget to restructure both local and foreign debts.

“Given Ghana’s high government debt burden and the debt structure, it is likely there will be substantial losses on both categories of debt in order for the government to meaningfully improve debt sustainability,” analysts Lucie Villa and Marie Diron wrote in the statement.

The West African nation, which is struggling to control runaway inflation and a weakening currency, is planning to restructure the debt in an attempt to pave the way for a bailout by the International Monetary Fund. Moody’s raised Ghana’s outlook to stable as the restructuring will likely happen in coordination with creditors and under an IMF program, the rating company said.

Read: High Risk of Distress Spurs Ghana to Consider Debt Exchange Plan

The country’s eurobonds extended a rally in early trading on Wednesday, with the yield on benchmark 2032 securities falling 22 basis points to 28.32%, a six-week low. Investors see a restructuring as a necessary prelude to getting an IMF bailout, and the downgrade didn’t come as a surprise, said Mark Bohlund, a senior credit research analyst at  REDD Intelligence.

“This is standard when the sovereign has made a public announcement that they will look to restructure external debt from private creditors,” Bohlund said. “It has been clear for months that this was going to happen but the rating agencies need a formal announcement from the government to move the credit rating into this rating spectrum which signals that a default is imminent.”

Ghana is expected to ask holders of its international bonds to accept losses of as much as 30% on the principal and forgo some interest payments as it hammers out a debt-sustainability plan to qualify for an IMF loan, Deputy Minister of Finance John Kumah said last week.

Ghana formed a committee last month to start talks with domestic bondholders to restructure its local-currency debt.

Worst Performers

Ghana’s eurobonds have been among the worst performers in emerging markets since Bloomberg reported the plans for the local debt recast in September, handing investors losses of almost 12% in that period, according to data compiled from a Bloomberg index. The bonds have rallied in recent days as the restructuring announcement added clarity to  the government’s plans to achieve debt-sustainability.

The cedi has plunged 57% this year, making it the worst performer among currencies tracked by Bloomberg. The weakening currency has increased the government’s debt burden by 93.9 billion cedi ($6.5 billion), according to the nation’s finance ministry.

Ghana’s is considering replacing existing terms and exchanging debts with longer tenors at cheaper rates, Abena Osei Asare, a deputy minister of finance, said last week. The plans come after an analysis of debt sustainability showed the nation faces high risk of distress.

To reduce pressure on the currency, the government of Africa’s second-biggest producer of gold plans to barter the metal for fuel. 

Fitch Ratings scores the nation at CC, two notches above default. S&P Global Ratings assigns it CCC+, seven levels into junk. Ghana’s credit rating has been falling since 2014.

(Updates with bond moves, analyst comment from fifth paragraph)

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