Ghana is seeking to restore policy credibility by asking the International Monetary Fund to help rescue its currency, Finance Minister Seth Terkper said.
The government’s plan to narrow the fiscal gap last year was too ambitious because of a shortfall in revenue, he said in an interview yesterday in Washington, where he is attending the U.S.-Africa Leaders Summit. The IMF program will include support for balance of payments, he said.
“We believe strongly that we are putting the right mechanisms into place,” he said. “It is about the certainty of policy that comes with an IMF endorsement.”
Ghanaian President John Dramani Mahama said last week his government will seek talks with the Washington-based fund to bring stability to an economy battered by the world’s worst performing currency in 2014.
Rising prices for gold and cocoa, steps to reduce debt-financing costs and cutting the state wage bill are already working and the government will see the benefits later this year as the IMF plan kicks in, Terkper said. Ghana is the world’s second-biggest producer of cocoa. The plan may be for two to three years and the government has yet to decide how much aid it will ask for, he said.
“The balance of payment support is the competence of the International Monetary Fund so they went to the right place in terms of getting macro-economic support,” Donald Kaberuka, president of the African Development Bank, said yesterday in an interview. “What they’re doing is right in the sense that they need to get the macro-economic framework right.”
The cedi dropped 36 percent against the dollar this year, as investors lost confidence in the government’s ability to narrow its budget gap to 8.8 percent of gross domestic product from 10.8 percent in 2013. The central bank financed the entire shortfall in the first quarter and continued to fund some of it in the following three months, prompting warnings from ratings companies that the practice would fuel inflation, already at 15 percent. The currency strengthened 1.3 percent to 3.67 per dollar at 9:41 a.m. in Accra.
Moody’s Investors Service cut the nation’s sovereign rating to B2, five levels below investment grade, in June and said the fiscal deficit will exceed 10 percent of GDP for a third straight year. Standard & Poor’s, Fitch Ratings and Moody’s all have a negative outlook on Ghana’s debt, signaling the possibility of further cuts.
Since having most of its debt cleared in 2005 as part of a global relief campaign for poor nations, Ghana has ramped up borrowing, while failing to keep spending under control. The government will go ahead with plans to sell as much as $1.5 billion in Eurobonds by the end of the month, Mahama said last week.