Ghana has been shaken by a severe currency crisis triggered when investors lost confidence in the face of increasingly unsustainable macroeconomic imbalances. Although signs of stabilisation have emerged since mid-2014, the authorities must convince investors that they will actually carry through on their commitments in terms of fiscal consolidation. Reaching an agreement with the IMF will be a vital step. Yet the authorities have very little manoeuvring room faced with a slowing economy, high inflation and significant twin deficits.
First signs of stabilization
Ghana’s economy is gradually emerging from a crisis in which its currency depreciated by nearly 70% against the dollar since January 2013. To halt this downward spiral, the country officially requested IMF assistance in August. The amount estimated ranges between USD800m and USD1bn. Shortly after, the authorities issued a USD1bn Eurobond, and the Ghana Cocoa Board (Cocobod), a government-controlled institution overseeing the cocoa industry, contracted a USD1.7bn syndicated loan. Foreign reserves could then be rebuilt, rising from a low of USD4.2bn in August to USD6bn in late October, the equivalent of slightly over three months of imports of goods and services, and the cedi appreciated. Furthermore, the government has announced an ambitious fiscal consolidation strategy for the next three years. Budget deficit would stand at 6.5% of GDP in 2015 before to reach 3.5% in 2017. But, it already looks like the plan will be hard to implement. Moreover, the IMF agreement is not expected before the end of Q1 2015, even though it is still a vital step in the process of improving investor confidence and stabilising the economy.
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BY Stéphane ALBY