ACCRA (Reuters) - Ghanaian President John Mahama has ordered his government to open talks with the International Monetary Fund on a program to help stabilize the economy and halt a slide in the cedi currency, officials said on Saturday.
Mahama told a meeting of his economic advisors on Friday that urgent measures should be taken to prop up the cedi GHS=, which has fallen by around 40 percent against the dollar this year, placing it among the world's worst performing currencies.
The West African country, which became the first sub-Saharan African country outside South Africa to tap the Eurobond market in 2007, is struggling to tame large budget and current account deficits, turning investor sentiment against the onetime frontier market darling.
With Ghana looking to issue a new $1.5 billion Eurobond toward the end of this month, some bond market participants said the backing of an IMF program would be necessary to reassure investors over the stability of the currency.
“The president has directed that we open negotiations with the IMF,” Finance Minister Seth Terkper told Reuters, adding the talks with the IMF would be focused on resolving specific problems rather than a general assessment of the economy. “This program is not going to be like any other program that countries have with the IMF.”
“Ghana is currently in a transition as a lower-middle income country. It’s in that context that we will be negotiating with the IMF,” Terkper said by telephone on route to Washington for a U.S.-Africa summit next week that Mahama is attending.
Deputy Finance Minister Casiel Ato Forson told Reuters the government had already informed the IMF of its decision to sign a new program. Ghana’s last three-year $600 million IMF program ended in 2012, two years after the country started oil production.
Forson said Ghana would look for concessions from the Fund to help its stabilization efforts and would continue to tap the bond market and other commercials sources of credit to support expenditure and economic growth.
Despite being a major exporter of gold, oil and cocoa, Ghana posted a current account deficit of 12 percent of GDP 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 fiscal responsibility.
Moody’s cut its debt rating in June to B2 from B1 and kept the rating on negative outlook, citing Ghana’s deteriorating fiscal position and rising debt levels.
Razia Khan, head of Africa research at Standard Chartered bank, said she expected the news of talks with the IMF to be positively received by financial markets.
“An IMF program would likely give to investors that additional level of confidence that fiscal consolidation might be pursued more seriously,” she said.
She noted that Zambia, Africa’s second-largest copper producer, had seen its Eurobond prices rise as investors welcomed the government’s decision in June to approach the IMF for help in stabilizing its currency and economy.
“However news of potential talks with the IMF is unlikely to be enough, on its own, to make a meaningful difference to the cedi just yet,” she told Reuters.
Mark Asibey-Yeboah, economic spokesman for the main opposition New Patriotic Party, welcomed the move as a step in the right direction to calming the economy, but he warned that austerity measures could inflict hardship on ordinary Ghanaians.
“It will come with conditions that will demand that the government adopt additional measures to fight inflation. They will also demand a freeze on wages,” he said. “But in all, the benefits will still outweigh the downside, so it’s a step in the right direction.”
Mahama on Friday also instructed his economic team to increase domestic gas supplies to the market to provide cheaper fuel for power generation and minimize the burden of oil imports on the currency, a communications ministry statement said.
Writing by Daniel Flynn; Editing by David Evans