Tags: Ghana | economy | IMF

Ghana Turns to IMF for Emergency Help Amid Currency Crisis

Sunday, 03 Aug 2014 11:53 PM

Ghana will seek immediate talks with the International Monetary Fund to help stem the world’s worst currency slide, ending four months of contradictory statements from the government about whether it needs emergency aid.

President John Dramani Mahama has instructed his economic advisers to “open discussions” with the Washington-based lender, the Ministry of Communications said in an e-mailed statement on Aug. 1. Ghana wants to start a program with the fund to stabilize the cedi and rein in inflation, Finance Minister Seth Terkper told local broadcaster Joy FM on Aug. 2.

The currency of West Africa’s second-largest economy has plunged 36 percent against the dollar this year as investors lost faith in the government’s ability to curb spending and rein in a current account deficit that’s set to exceed 10 percent of gross domestic product this year. Since having most of its debt cleared in 2005 as part of a global debt-relief campaign for poor nations, Ghana has racked up borrowing, while failing to keep government spending under control.

Conflicting statements from the government about whether it will seek IMF assistance has undermined the currency. The cedi dropped 6.2 percent against the dollar on July 30, a day after Deputy Finance Minister Mona Quartey said the government preferred a “home-grown strategy” to an IMF loan and planned to sell $1.5 billion in Eurobonds by the end of the month.

“The decision to turn to the IMF is one which Mahama tried to put off for as long as he could and is still reluctant to take,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in e-mailed comments. “One senses that the government has yet to come to terms with the gravity of its financial predicament.”

Terkper didn’t specify this weekend whether the government will seek a loan or technical advice.

“When you stabilize the cedi you are also looking at a situation where investors do see a more predictable economy,” he said.

The cedi fell as much as 2.3 percent to 3.75 against the dollar on Aug. 1. A weaker currency has spurred inflation to 15 percent in June, prompting the central bank to increase its benchmark interest rate by 1 percentage point to 19 percent on July 9.

The IMF “stands ready to engage with the Ghanaian authorities and develop with them a fund-supported program to tackle Ghana’s fiscal and external imbalances as soon as a formal request is received,” spokesman Ismaila Dieng said in an e-mailed statement yesterday.

Mahama’s comments came days before he participates in the first U.S.-Africa Summit this week, an initiative from President Barack Obama that will draw more than 40 African heads of state to Washington to hold talks with American investors seeking opportunities on the continent. The U.S. administration said it expects to sign more than $900 million in deals during the three-day meeting.

Ghana’s government is struggling to narrow the budget deficit as wages for state workers ballooned to almost 70 percent of tax income. Terkper last month revised the 2014 fiscal-gap target to 8.8 percent of GDP from 8.5 percent. The shortfall will probably exceed 10 percent of GDP for a third consecutive year, according to Fitch Ratings, which downgraded Ghana last year to B, five levels below investment grade, with a negative outlook.

The current-account deficit may average 11.1 percent of GDP this year, according to the median estimate of five economists surveyed by Bloomberg. The shortfall was 12.3 percent in 2013.

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Africa
Ghana will seek immediate talks with the International Monetary Fund to help stem the world’s worst currency slide, ending four months of contradictory statements from the government about whether it needs emergency aid.
Ghana, economy, IMF
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2014-53-03
Sunday, 03 Aug 2014 11:53 PM
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