Ghana Reverses Course to Seek IMF Support to Bolster Finances

Ghana will begin talks with the International Monetary Fund to support a government economic program, reversing a policy decision not to seek assistance from the multilateral lender.

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(Bloomberg) — Ghana will begin talks with the International Monetary Fund to support a government economic program, reversing a policy decision not to seek assistance from the multilateral lender. 

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President Nana Akufo-Addo authorized Finance Minister Ken Ofori-Atta to start “formal engagements” after a phone conversation with IMF Managing Director Kristalina Georgieva, the Information Ministry said in a statement on Friday. A deal would be Ghana’s 17th IMF program since independence in 1957. 

The West African nation’s eurobonds surged after the announcement, with the benchmark 2027 securities jumping 13% to 64.779 cents in the dollar by 4:43 p.m. in London. Ghanaian notes have been trading at distressed levels amid concern the government won’t be able to refinance foreign debt after the pandemic and the war in Ukraine sent borrowing costs soaring. 

“It makes sense for Ghana to seek cheap IMF financing as bond markets were shut to the country,” Charles Robertson, London-based global chief economist at Renaissance Capital, said in a post on Twitter. “Just saying they’ll begin talks helps open the door to eventual market access.”

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Ghana has been struggling to stabilize debt that has grown to 78% of gross domestic product at the end of March from 62.5% five years ago, because of a sweeping clean-up of the banking sector, energy-sector loans and the impact of the coronavirus pandemic. Opposition leader John Mahama, the nation’s former president, warned on Thursday that the government would have to turn to the IMF to avert an economic “catastrophe.”

Akufo-Addo’s government has repeatedly said it would not seek a monetary program from the IMF. A spokesperson at the finance ministry declined to comment when reached by phone on Friday.

“Today’s bond reaction shows that an IMF program is the absolute right move,” said Simon Quijano-Evans, a London-based economist at Gemcorp Capital. “Ghana has the potential to excel, especially given the empowerment of civil society. The one thing that is missing is a reform anchor, which an IMF program should help address.”

Deteriorating economic conditions spawned demonstrations in Ghana earlier this week, with police using teargas and water cannons to disperse crowds and arresting dozens of protesters.

Africa’s second-biggest cocoa and gold producer has increased its key interest rate by 450 basis points this year — the second-largest margin on the continent — to stem a sell-off of government bonds and contain price pressures. Inflation accelerated to a more than 18-year high of 27.6% in May and Ghana’s cedi is the worst-performing African currency, weakening 22.6% since the beginning of the year.

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