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Ghana says in talks for at least $1 billion IMF support

Ghana says in talks for at least $1 billion IMF support
Written by Kwasi Kpodo
Thursday, May 07, 2009 3:23:53 PM

ACCRA (Reuters) - Ghana is in talks with the International Monetary Fund to secure a total of at least $1 billion of support to prop up its foreign exchange reserves, the Finance Ministry said on Thursday.

The West African country, the world's second biggest cocoa grower, is grappling with a swelling budget deficit and trade imbalances after the cost of food and fuel imports surged to record highs last year. Its woes have unsettled some investors holding its debut Eurobond.

"We discussed program options, which are essentially the standby arrangement or Poverty Reduction and Growth Facility (PRGF)," the Finance Ministry said in a written statement provided to Reuters, adding that a further round of talks were due next week.

It said the PRGF had an advantage of concessional funding, at a fixed 0.5 percent interest rate payable over 10 years, as opposed to a market-based interest rate on the stand-by which also has a shorter repayment period of less than 5 years.

Ghana expects to receive $420 million in the third quarter of this year as part of an IMF commitment at the Group of 20 summit in London to increase its allocations of special drawing rights (SDRs) to member countries, the ministry said.

The SDR is an international reserves asset, created by the IMF to supplement the existing official reserves of its members.

The fund also agreed to support for Ghana's balance of payments gap, the ministry added.

"Preliminary indications are that the Fund's support could be in the order of around $600 million over a two-three-year period, which together with the additional special drawing rights allocation, would boost Ghana's gross foreign exchange reserves by around $1 billion," it predicted.

Ghana is grappling with a weakening national currency and inflation, currently at a five-year high and quickening.

It is also suffering from the impact of lower remittances sent home by workers abroad as the global economic crisis bites.

"Ghana desperately needs such assistance programs to be able to achieve any meaningful turnaround of the economy. ... Of course, it should be backed by prudent management," Ishac Diwan, the World Bank representative in Ghana, told Reuters separately.

Ghana's budget deficit stands at a provisional 14.9 percent of gross domestic product in 2008 -- a gap the new government of President John Atta Mills plans to narrow to 9.4 percent of GDP by the end of 2009.

Labels: ACCRA, GHANA, IMF, PRGF

posted by MrK @ 2:26 PM