UPDATE 2-Ghana ends ban on dollar imports, eyes bond issue next month

Tue Jul 29, 2014 4:38pm EDT

Related Topics

* Ghana to allow commercial banks to import dollars

* Currency slide, deficits discouraging investors

* Government eyes $1.5 bln Eurobond issue in late August (Adds details)

By Kwasi Kpodo

ACCRA, July 29 (Reuters) - Ghana said on Tuesday it had ended a ban on commercial banks importing dollars in a bid to prop up its ailing cedi currency and said it planned to press ahead with a $1.5 billion Eurobond next month if market conditions were favourable.

Struggling to tame large budget and current account deficits, the West African country has seen its currency slide by more than 40 percent this year against the dollar amid high demand for the greenback, turning investor sentiment against Ghana, a onetime frontier market darling.

In an attempt to increase the supply of dollars to the local market, Central Bank Governor Henry Kofi Wampah said Ghana had decided to end a ban, in place since 2012, on commercial banks bringing dollars into the country directly.

He said the central bank had decided to reverse the ban last week and that the measure was implemented immediately.

"We believe it (will) help improve foreign exchange liquidity in the system," Wampah told Reuters on the sidelines of a meeting in the capital Accra to explore options to boost Ghana's sources of foreign exchange.

Despite being a major exporter of gold, oil and cocoa, Ghana posted a current account deficit of 12 percent of gross domestic product last year as demand for imports boomed amid economic growth of 7 percent.

Ghana is also grappling with a wide budget deficit, which stood at 10 percent of GDP last year, undermining its reputation for economic stability. The cedi is the second worst performing currency in the world this year to date, behind only Ukraine's.

"BIG DISAPPOINTMENT"

Wampah said expected inflows from the upcoming $1.5 billion Eurobond would provide significant liquidity to the bank to use in support of the cedi.

Ghana's Vice President Kwesi Amissah-Arthur, who chairs the government's economic management team, said the government was eyeing international debt markets to ensure it timed the issue favourably. "We will be monitoring the markets and we are hoping to go in towards the end of next month," he said.

Amissah-Arthur voiced optimism that Ghana's economy would improve at the end of this year on the back of foreign capital inflows. A key factor will be the activation of a Chinese-funded plant to process gas from the offshore Jubilee field, he added.

He also said he had received positive responses from donor countries, including Brazil, to replace a $1.5 billion Chinese loan which the government cancelled due to disagreements over repayment conditions.

Daniel Broby, CEO of hedge fund Gemfonds in London, said investors had begun to perceive Ghana "very negatively" because of its failure to tackle its large budget deficit and sliding currency.

"Ghana is one of the big disappointments of the fixed income world," he said. "Until they can sort out the depreciation of the cedi, they can't really worry about bond issuances, because who is going to buy the stuff?"

Investors have become concerned about Ghana's fiscal situation. Moody's cut its debt rating last month to B2 from B1 and kept the rating on negative outlook, citing Ghana's deteriorating fiscal position and rising debt levels.

Another emerging market debt investor, who asked not to be identified, said the decline in the cedi was keeping buyers on the sidelines and they were unlikely to return unless Ghana sought a package with the International Monetary Fund.

However, Amissah-Arthur said Ghana had no immediate plans to sign a deal to follow up a three-year $600 million IMF programme that ended in 2012.

"Signing up to the IMF has its benefits but it must be done at the right time," he said. "What is important at this time is that, irrespective of 'IMF or not', we are taking bold steps to stabilise the economy and boost international confidence." (Additional reporting by Andrew Winterbottom in London; Writing by Daniel Flynn; Editing by David Lewis and Gareth Jones)

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