Ghana Pleads For Financial Assistance From The IMF

To/ Felix Kwakye: Gov’t is not seeking a bailout from IMF – Felix Kwakye

Investors fear a return to the time of insolvency. The Government of Ghana, the country with the most unstable currency this year is requesting financial assistance from the International Monetary Fund. It is the second time since June that an African State asks the Fund for assistance.

The Ghanaian President John Mahama has asked the IMF for help to support Stabilisation and Growth Programme, the presidential office said on the website of a state newspaper. Recently, the budget deficit and the inflation rate in Ghana have expanded to double digits, and the national currency Cedi crashed. According to Fiifi Kwetey, Ghana's Agriculture Minister and former Finance Minister, his government will probably requested financial assistance and policy advice.

The official application from Ghana was handed out when Mahama and some 50 other African leaders in the United States come together for a summit with U.S. President Barack Obama. Once an official request had been received, the IMF will have a talks with the Ghanaian authorities to address the fiscal and external imbalances, said the IMF spokeswoman Ismaila Dieng.

Ghana's transformation from one of the fastest growing economies of Africa to, now the country with the world's worst currency development is sobering for the African markets. Ghana and some few African countries were considered among investors as a promise, but have difficulties in integrating into the global financial system in order to bring new debt and investor expectations into line. "African leaders must understand that multilateral institutions and investors do not want to start again with the financial aid game," says Hendrik du Toit, Head of Asset Management Investment. "They want to see reliable and sustainable growth." Zambia, also a rapidly growing African economy with a wealth of mineral resources such as copper, moved in the past few years many new investors. But Zambia asked the IMF in June for financial aid.

As in Ghana also came Zambia's national currency into a tailspin, while the trade and budget deficit widened more and more. The course of the Zambian kwacha has fallen this year compared to the U.S. dollar by 11 percent. The Ghanaian Cedi is even cheaper by 50 percent. Ghana was one of the first African countries, international lenders and industrialised countries issued the debt ten years ago. The country with its 26 million inhabitants, is a major exporter of gold, cocoa and oil. In 2007 it rose after South Africa became the first African country south of the Sahara, the international government bonds hung up. Meanwhile, about a dozen neighbouring countries have also placed bonds on the market to benefit from the strong interest on the capital market. Because of falling growth and interest rates in the developed world are looking for many investors, especially in developing and emerging markets after returns.

Ghana made a mistake to tripled the soldiers salaries but in the meantime Ghana's financial position is tilted, partly because the government has tripled the salaries of soldiers and policemen. In addition, much revenues that came from the Ghana oil field in 2010 was lower than expected. Therefore the budget deficit soared last year to 10.5 percent of gross domestic product (GDP) in the height.

The IMF has warned African countries to fall back in the indebtedness, especially because investors looking for reliable sources of return their capital from developing countries deduct now much faster than before. "Politicians in Africa usually use to certainly have their hands full," said IMF Managing Director Christine Lagarde in June at a conference on the prospects for Africa.

Despite the growing problems, Ghana has announced possibly in August to establish new international sovereign bonds worth more than 1.5 billion dollars. For now, investors are likely to enter Ghana, however, evaluate planned cooperation with the IMF as a sign that the country can repay its debts on time. "This is the confirmation that most investors are waiting for. And that something needs to be done," says Ronak Gopaldas, a risk analyst at Rand Merchant Bank.

FRANCIS TAWIAH (Duisburg - Germany)