World’s worst currency drops as Ghana pulls back from IMF aid

July 30, 2014
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Ghana’s cedi, the world’s worst- performing currency this year, weakened as the government ruled out an International Monetary Fund bailout, stoking concern it will miss targets to narrow a budget deficit.

The currency retreated for the first time in five days against the dollar, dropping as much as 6.4 percent, after Deputy Finance Minister Mona Quartey said the government of the world’s second-biggest cocoa producer plans to sell a third Eurobond next month rather than take IMF aid. Returns on Ghana’s dollar debt are the lowest in Africa this year, according to Bloomberg indexes.

“If they could get IMF support that would be a much more sustainable solution” in helping to stem a drop in the cedi, Melissa Verreynne, an analyst at NKC Independent Economists in Paarl, South Africa, said by phone today. The proceeds from a Eurobond sale would provide only temporary support to the currency, she said.

Finance Minister Seth Terkper opened the door to IMF support earlier this year as slumping earnings from gold, cocoa and oil, the country’s biggest exports, curbed government revenue, according to the Bank of Ghana. Terkper revised the nation’s 2014 fiscal deficit target to 8.8 percent of gross domestic product from 8.5 percent as power cuts, inflation and the depreciating cedi curb economic growth. The gap was 10.1 percent in 2013.

“We’re not considering an IMF loan at this time,” Quartey said by phone yesterday. Plans to sell $1.5 billion in Eurobonds are “part of a home-grown strategy to stabilize the cedi,” she said.

Inflation Threat

The cedi weakened 4 percent to 3.59 per dollar as of 11:45 a.m. in Accra, the capital, extending losses this year to 33 percent. Yields on the nation’s Eurobonds due August 2023 were little changed at 8.21 percent. Ghanaian dollar debt returned 5.3 percent this year, less than the 9.3 percent emerging-market average, according to Bloomberg indexes. Ghana will start marketing its next issuance by the end of August, Quartey said.

Companies in Ghana are battling because of the weakening currency that pushed the inflation rate to 15 percent in June, a 10th straight month of increases. Produce Buying Co., the country’s largest purchaser of cocoa from farmers, said last week it delayed plans to borrow $30 million from France’s development agency as the cedi’s slide threatened to boost repayment costs.

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