Ghana’s cedi, the world’s worst-performing currency this year, weakened as the government ruled out an International Monetary Fund bailout, stoking concern it will miss targets to narrow a budget deficit.
The currency retreated for the first time in five days against the dollar, dropping as much as 6.4 percent, after Deputy Finance Minister Mona Quartey said the government of the world’s second-biggest cocoa producer plans to sell a third Eurobond next month rather than take IMF aid. Returns on Ghana’s dollar debt are the lowest in Africa this year, according to Bloomberg indexes.
Some investors “don’t have the full confidence in the government’s home-grown policy because steps that have already been implemented have not yielded expected results,” Elvis Darku, head of fixed-income trading at Access Bank Ghana Ltd., said by phone today. “Those traders who were disappointed that the government was no longer looking at an IMF bailout probably started bidding the cedi lower.”
Finance Minister Seth Terkper opened the door to IMF support earlier this year as slumping earnings from gold, cocoa and oil, the country’s biggest exports, curbed revenue, according to the Bank of Ghana. Terkper revised the 2014 fiscal deficit target to 8.8 percent of gross domestic product from 8.5 percent and increased spending by 3.2 billion cedis ($873 million) on July 16, while saying power cuts, inflation and the weak cedi are curbing growth. The gap was 10.1 percent in 2013.
“We’re not considering an IMF loan at this time,” Quartey said by phone yesterday. Plans to sell $1.5 billion in Eurobonds are “part of a home-grown strategy to stabilize the cedi,” she said.
The cedi weakened 6.2 percent to 3.6651 per dollar as of 1:47 p.m. in Accra, the capital, extending losses this year to 33 percent. Yields on the nation’s Eurobonds due August 2023 rose two basis points, or 0.02 percentage point, to 8.23 percent. Ghanaian dollar debt returned 5.3 percent this year, less than the 9.3 percent emerging-market average, according to Bloomberg indexes. Ghana will start marketing its next issuance by the end of August, Quartey said.
“If they could get IMF support that would be a much more sustainable solution” in helping to stem a drop in the cedi, Melissa Verreynne, an analyst at NKC Independent Economists in Paarl, South Africa, said by phone today. The proceeds from a Eurobond sale would provide only temporary support to the currency, she said.
Traders who sold the cedi today “would have preferred an IMF financing since that was going to come with fiscal discipline,” Darku said. In 2009, when Ghana entered a three-year IMF program that included about $600 million of loans, the Washington-based lender included targets to reform taxes and revenue collection and reduce subsidies on power and gasoline.
In July 2012, the IMF said Ghana missed targets on the budget deficit and reserves and delayed meeting goals on auditing the payroll and integrating tax offices.
Companies in Ghana are battling because of the weakening currency that pushed the inflation rate to 15 percent in June, a 10th straight month of increases. Produce Buying Co., the country’s largest purchaser of cocoa from farmers, said last week it delayed plans to borrow $30 million from France’s development agency as the cedi’s slide threatened to boost repayment costs.
Source: Bloomberg Businessweek