Business in Ghana

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Archive for June 10th, 2014

Fitch Warns Ghana On New Eurobond

Posted by Business in Ghana on June 10, 2014

By Sudip Roy, FT

Fitch has warned that Ghana will find it “increasingly challenging” to sell its new Eurobond due to mounting fiscal and external vulnerabilities.

The West African nation is rumoured to have hired Barclays, Deutsche Bank and Standard Chartered for an up to US$1.5bn Eurobond, though the timing of the deal has yet to be determined.

A successful deal may ease immediate external funding pressures. But even though Ghana, as with other emerging markets, has seen its outstanding debt rally significantly over the past few weeks with its 2023 notes trading at just under 8% compared with more than 9% at the end of April, Fitch reckons the cost of any bond “would likely be high.”

The ratings agency has highlighted the country’s vulnerabilities in a new note published on Monday, especially the central bank’s role in funding Ghana’s budget deficit in the first quarter.

“Printing money to finance the deficit will aggravate already high inflation (14.7% in April 2014) and contribute to further cedi weakness,” said the note, adding the currency has fallen 21% since the start of the year. Read the rest of this entry »

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Zambia’s lesson for Ghana: call the IMF

Posted by Business in Ghana on June 10, 2014

by Javier Blas, Reuters

When Zambia last week approached the International Monetary Fund for financial help, another cash-strapped African country was surely watching: Ghana.

Lusaka and Accra face similar problems: runaway fiscal deficits – the result of electorally-driven increases in public sector salaries – and a swelling current account deficit that is pressuring the exchange rate.

The market response to Zambia’s request should convince Ghana to seek help, too.

By all accounts, the fiscal problem is more severe in Ghana than in Zambia. The ruling National Democratic Congress introduced in Ghana a new public sector salary structure in 2010. After a wave of salary hikes, the government’s wage bill now consumes roughly 70 per cent of the country’s tax revenue.

The market was expecting that Ghana would first approach the IMF. Instead, Zambia last week asked the IMF to discuss “an economic programme that could be supported by a fund arrangement.” The market reaction has been very positive, officials say.

The Zambian currency, the kwacha, has appreciated sharply against the dollar. At one point this year, it was down 27.5 per cent against the US dollar since January, making it the worst performing currency in Africa. But after rallying strongly over the last week as rumours of the IMF plan surfaced, it has cut its losses to 16 per cent. Read the rest of this entry »

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