Ghana’s Risk Rising as Bank Prints Money to Pay Debt, Fitch Says

Ghana’s central bank is printing money to help finance the government’s budget deficit, threatening to fuel inflation and weaken a currency that’s already the worst performer in Africa this year.

The first-quarter budget deficit of 2.1 percent of gross domestic product “was financed by the central bank, which provided funding equivalent to 10 percent of government revenue,” Carmen Altenkirch, an analyst at Fitch in London, said in an e-mailed statement today.

Investor concern that Ghana’s government will struggle to rein in spending has contributed to a 23 percent slump in the cedi against the dollar this year. That’s pushed up the inflation rate to 14.7 percent in April.

“Printing money to finance the deficit will aggravate already high inflation and contribute to further cedi weakness,” Altenkirch said.

Calls to Ghana’s central bank Governor Kofi Wampah didn’t connect and Grace Akrofi, head of research, wasn’t immediately available when contacted by Bloomberg News for comment.

Fitch, which has a negative outlook on Ghana’s B rating, said it expects the budget deficit to exceed 10 percent of gross domestic product for a third consecutive year, in line with forecasts by Moody’s Investors Service. Debt will probably reach 61 percent of GDP by the end of the year, Altenkirch said.

The cedi dropped 1.3 percent against the dollar to 3.075 as of 1:47 p.m. in Accra. Yields on Ghana’s debut Eurobond, a 10-year note sold in 2007, rose 1 basis point, or 0.01 percentage point, to 6.24 percent.

Ghana’s plan to sell a new Eurobond this year “might ease immediate external financing pressures, but the cost would likely be high,” Fitch said. “Attracting dollars to fund the current account and budget deficits looks increasingly challenging.”

Fitch downgraded Ghana’s rating to five levels below investment grade in October. The next scheduled rate review is on Sept. 26, it said.

To contact the reporter on this story: Pauline Bax in Accra at pbax@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net; Karl Maier at kmaier2@bloomberg.net

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