Politics
IMF Cash Seen for Ghana as Investors Bid Up Bonds
The second-best dollar-bond rally in Africa this month is signaling growing speculation that Ghana will seek aid from the International Monetary Fund as the government struggles to close its budget deficit. Dollar debt from the West African exporter of gold, cocoa and oil returned 3.5 percent in May, the most after Morocco among nine countries on the continent tracked by Bloomberg indexes.
Emerging markets earned 2.2 percent. The yield on Ghana’s August 2023 bond slid 108 basis points since March 25, when former central bank Deputy Governor and opposition politician Mahamudu Bawumia said a bailout may be needed. Ghana’s fiscal gap is seen at 9.1 percent of gross domestic product this year, a Bloomberg survey of economists shows, as tax revenue missed targets, gold and cocoa earnings fell and state workers got raises.
While President John Dramani Mahama said May 13 the nation seeks a “homegrown strategy” to solve its economic ills and hasn’t made a decision on the IMF, he’s also facing a slumping currency that is fueling inflation. “Most international portfolio managers I’ve spoken with believe the government should sign a deal with the IMF,” Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd.’s London unit, said in an e-mailed response to questions yesterday. “By having the IMF directly involved, the fiscal consolidation agenda will possibly look more credible.”
Funding Conditions
Yields on Ghana’s debut Eurobond, a 10-year note sold in 2007, dropped 402 basis points in the second half of 2009 as the IMF said that July it would lend Ghana at least $603 million over three years after its budget deficit ballooned following an election. The funds came with conditions on tax reforms, fuel-subsidy cuts and lower spending. The deficit narrowed to 6.5 percent in 2011 before jumping to 12.1 in 2012, the year Mahama came to office, the IMF said.
Finance Minister Seth Terkper said he’s targeting an 8.5 percent deficit for 2014. Ghana may consider signing a deal with the IMF if measures to narrow budget and current-account shortfalls prove ineffective, Terkper said in an interview in Maputo, Mozambique today. Ghana hasn’t requested a program, Resident IMF Representative Samir Jahjah said by e-mail on May 27. Ismaila Dieng, a spokesman based in Washington, didn’t immediately respond to an e-mail yesterday.
Yields Drop
Barring any shocks, “yields on the Eurobond will fall as the country makes incremental progress with implementing an IMF package,” Mahan Namin, a money manager at London-based Insparo Asset Management, which oversees $162 million, said in an e-mailed response to questions yesterday. The “IMF would help by providing a standby credit facility, under which Ghana would commit to a broad range of structural reforms,” he said.
Yields on Ghana’s second dollar bond may fall 100 to 200 basis points in 12 to 18 months if the country goes to the IMF, Namin said. They declined a third day, dropping three basis points, or 0.03 percentage point, to 8.27 percent by 1:25 p.m. in Accra, the least since Dec. 3. The cedi weakened 1.5 percent to 3.05 per dollar, extending its 2014 drop to 22 percent, the worst in Africa.
