Ghana will begin talks with the International Monetary Fund to support a government economic program, reversing a political decision not to seek aid from the multilateral lender, according to Bloomberg.
President Nana Akufo-Addo authorized Finance Minister Ken Ofori-Atta to initiate “formal engagements” after a telephone conversation with IMF Managing Director Kristalina Georgieva, the Ministry of Information said in a statement on Friday. An agreement would be the 17th IMF program for Ghana since independence in 1957.
The West African country’s eurobonds rose after the announcement, with benchmark 2027 notes jumping 13% to 64.779 cents on the dollar in London. Ghanaian bonds are trading at troubled levels amid concerns that the government will be unable to refinance external debt after the pandemic and the war in Ukraine sent borrowing costs skyrocketing.
“The IMF stands ready to help Ghana restore macroeconomic stability, ensure debt sustainability, promote inclusive and sustainable growth, and address the impact of the war in Ukraine and the protracted pandemic,” an IMF spokesperson said in a statement. notice sent by e-mail. “We look forward to meeting with the authorities in the coming weeks to begin initial discussions.”
The Akufo-Addo government has repeatedly said it will not seek a monetary program from the IMF. A Treasury spokesman declined to comment when reached by phone Friday.
“It makes sense for Ghana to seek cheap IMF financing as bond markets have been closed for the country,” Charles Robertson, global chief economist at London-based Renaissance Capital, said on Twitter. “Just saying they’re going to start talks helps open the door for potential market access.”
Ghana is struggling to stabilize debt that has risen to 78% of gross domestic product at the end of March from 62.5% five years ago due to a sweeping consolidation of the banking sector, energy sector loans and the impact of the coronavirus pandemic . Opposition leader John Mahama, the country’s former president, warned on Thursday that the government should turn to the IMF to prevent an economic “catastrophe”.
“Bonds’ reaction today shows that an IMF program is absolutely the right move,” said Simon Quijano-Evans, London-based economist at Gemcorp Capital. “Ghana has the potential to excel, especially given the empowerment of civil society. The only thing missing is a reform anchor, which an IMF program should help address.”
Worsening economic conditions sparked protests in Ghana earlier this week, with police using tear gas and water cannons to disperse crowds and arrest dozens of protesters.
Africa’s second-biggest cocoa and gold producer has raised its key interest rate by 450 basis points this year – the second-widest margin on the continent – to stem the selloff of government bonds and limit price pressures. Inflation accelerated to an 18-year high of 27.6% in May and the Ghanaian cedi is the worst-performing African currency, having weakened 22.6% since the start of the year.