Ghana gets biggest IMF loan ever
The money will be used to bolster the reserves of the central bank and to support the currency, Finance Minister Kwabena Duffuor told reporters in Accra, the capital, today. Ghana will receive $660 million by the end of this year and the rest between 2010 and 2012, Peter Allum, IMF mission chief for Ghana, said on a conference call.
Ghana, the world’s second-largest cocoa producer, needs the funds to deal with a budget deficit that reached 14.9 percent of the nation’s annual output in 2008, and a currency which has dropped 14 percent against the dollar during the past 6 months.
The loans will give “very strong support” to the cedi, Duffuor said. The cedi traded at 1.49900 to the dollar late yesterday, according to Bloomberg data.
The funding package is designed to help Ghana narrow its budget gap to 9.4 percent of gross domestic product this year and to 6 percent by 2010, the IMF’s Allum said. It also sets goals for inflation and will aid the nation’s government in controlling costs and improving revenue collection, he added.
The IMF has already identified areas of improvement, such as being more “cautious” with civil servant pay increases and doing away with some excise and tax exemptions, Allum said. Ghana will also have to implement “quite large” electricity tariff increases, he added.
The West African nation’s budget deficit was 2.8 percent during the first five months of the year. Most ministries have had their budgets cut to between 50 percent and 60 percent of the funds they requested because the “fiscal imbalance was so big so we had no other option,” Duffuor said in June.
The budgetary measures have also helped stabilize the cedi, said Duffuor, a former governor of the Bank of Ghana. While Ghana is unlikely to match last year’s growth rate of 7.3 percent, the country is likely to achieve a growth rate of 5.9 percent this year, Duffuor said last month.
Ghana, which is also Africa’s second-biggest gold producer, may next year become one of the world’s top 50 oil producers when its first oil field, producing 120,000 barrels-of-oil a day, starts up. By 2014 the country expects to boost that output more than fourfold.
Revenue from oil may help push economic growth to 24 percent in 2011, the IMF’s Allum said, from an estimated 4.5 percent this year. The surge in revenue should put the country in a “much better position” to repay a Eurobond due in 2017, he said. The government last year issued $750 million of 10-year notes that pay interest of 8.5 percent.
The yield on the bond fell to 10.42 percent yesterday, from 12.68 percent on May 7 when the Finance Ministry said it was in talks with the IMF. The extra yield investors demand to own the country’s Eurobonds instead of U.S. Treasuries declined to 6.98 percentage points yesterday from 10.25 percentage points on May 7, according to JPMorgan Chase & Co. The Eurobond returned 47 percent in the first half of 2009 after losing 39 percent last year, according to Merrill Lynch & Co. data.
“These inflows are a positive development, especially given the structural imbalances displayed by the Ghanaian economy in 2008,” Samir Gadio, a market strategist at Renaissance Capital, said in an e-mailed response.
The pace of decline in the cedi may slow in second half of this year, should cocoa and gold prices remain “robust,” Gadio said. The currency is unlikely to gain because imports still exceed exports, and remittances and foreign direct inflows will fall, he added.
Duffuor also announced today that the state-owned Ghana Cocoa Board has borrowed $1.2 billion from 31 banks to finance purchases from farmers this season.