June 11 (Bloomberg) -- The Bank of Ghana said it financed the government’s entire budget deficit in the first quarter, measures that Fitch Ratings warned will fuel inflation and weaken Africa’s worst-performing currency.
“Because of shortfalling government revenue, all financing of the deficit came from the central bank,” Grace Akrofi, head of research, said in a phone interview from Accra, the capital. “The central bank is allowed to give a short-term advance to the government when there is a deficit.”
The Bank of Ghana printing money to finance the fiscal gap threatens to fuel an inflation rate that’s at a four-year high and further weaken a currency that’s plunged 23 percent against the dollar this year, Fitch said on June 10. The government is struggling to fund a shortfall that Fitch estimates will exceed 10 percent of gross domestic product this year.
Ghana’s first-quarter deficit of 2.1 percent of GDP amounted to just over 2 billion cedis ($644 million), Akrofi said. The central bank has taken the measures before and will monitor the impact of its actions on inflation, she said.
“There could be some inflationary impact but we have tools to mop up any excess liquidity,” she said.
Inflation accelerated to 14.8 percent in May from 14.7 percent in the previous month, the statistics agency said today. The cedi dropped 0.7 percent against the dollar to 3.105 as of 4:10 p.m. in Accra.
The Bank of Ghana expects the government to remain within its budget-deficit target of 8.5 percent of GDP this year, Akrofi said.
Fitch has a negative outlook on Ghana’s credit rating, which was downgraded last year to B, the fifth-lowest investment-grade level.
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