Will Ghana Seek External Assistance?

BMI View: Macroeconomic stability is under threat in Ghana, due to the twin deficits on the fiscal account and current account. The government will seek some form of external assistance, the most likely option being limited technical assistance from the IMF.

There is growing speculation that Ghana may need some form of financial bailout, given various macroeconomic challenges. First and foremost, the budget deficit remains wide and the government debt burden is rising. At the same time, the current account deficit is also gaping, foreign reserves are low, inflation is increasing (14.5% in March 2014) and the local currency has plummeted by almost 15% year-to-date.

The authorities have responded with emergency measures including new foreign exchange laws and a 200 basis point interest rate hike in early February 2014, followed up with an increase in the cash reserve requirement for banks to 11% from 9% in early April 2014. Yet, the cedi has continued to plumb new lows, indicating weak confidence in the currency both domestically and abroad.

Spending Pressures Have Crept Up
Ghana - Fiscal Expenditure by Category, % of GDP

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Related sectors of this article: Economy, Finance, Fixed Income, Forex, Balance of Payments, Fiscal Policy
Geography: Ghana

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