Crisis-hit Ghana changes its mind and turns to IMF for help

© Reuters. FILE PHOTO: President of Ghana Nana Akufo-Addo arrives for the Leaders' Retreat, on the sidelines of the Commonwealth Heads of Government Meeting at the Intare Conference centre in Kigali, Rwanda June 25, 2022. Dan Kitwood/Pool via REUTERS

By Christian Akorlie

ACCRA (Reuters) -Ghana, one of West Africa's largest economies, will hold formal talks with the International Monetary Fund (IMF) on a support package, the government said on Friday, after hundreds took to the streets to protest against mounting hardship.

The cabinet gave its support for the decision at a meeting on Thursday, following a phone conversation between President Nana Akufo-Addo and IMF Managing Director Kristalina Georgieva.

Ghana, a gold, cocoa and oil producer, has until now refused to seek IMF support to rescue an economy crippled by the pandemic, rampant inflation and a depreciating currency, despite analysts warning it is close to a debt crisis..

The IMF confirmed Ghana's request for help and said it would start discussions with authorities in the coming weeks.

"The IMF stands ready to assist Ghana to restore macroeconomics stability; safeguard debt sustainability; promote inclusive and sustainable growth; and address the impact of the war in Ukraine and the lingering pandemic," an IMF spokesperson told Reuters.

Central bank governor Ernest Addison said in May that Ghana faced an overall balance of payments deficit of $934.5 million in the first quarter of 2022, compared with $429.9 million in the same period last year.

Analysts said the decision had been inevitable and should help Ghana deal with its challenges.

"The first gain for Ghana will be improved international confidence in the country's capacity and efforts to weather the crisis," said Leslie Dwight Mensah, Economist and Research Fellow at the Institute for Fiscal Studies in Accra.

Ghana's dollar-denominated sovereign bonds rallied sharply, with issues maturing in 2027 jumping more than 7 cents in the dollar to trade at their highest level since May.

Investors were divided over whether they expected Ghana to have to restructure its debts through the Group of 20 leading economies' Common Framework process as a condition of IMF help.

"There's a limit to the upside in terms of the market now getting excited about an IMF program, because... the IMF is going to require some form of a debt restructuring," said Kevin Daly of emerging market asset manager Abrdn.

"We would be loathe for them to go through that protracted, very difficult and in our view ineffective process," Yvette Babb of William Blair, said of the Common Framework.

Hundreds took to the streets in Accra this week to protest against spiraling inflation and other woes. Growth slowed to 3.3% year-on-year in the first quarter of 2022 and inflation hit a record of 27.6% in May.

The central bank raised its main interest rate by 200 basis points to 19% last month, the second hike this year to buttress macroeconomic stability.