Ghana’s currency, the cedi, has experienced remarkable performance against the US dollar in the last six months, driven by investor optimism surrounding an anticipated $3 billion bailout approval from the International Monetary Fund (IMF).
Between November 2022 and now, the cedi has gained an impressive 33%, surpassing approximately 150 other global currencies tracked by Bloomberg.
Ghana’s dollar bonds have also performed strongly, generating a return of almost 12%, exceeding the average of 3.6% for similar bonds in emerging and frontier markets according to a Bloomberg index.
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The Minister of State for Finance, Mohammed Amin Adam, has stated that Ghana expects to receive the initial tranche of $600 million soon after the upcoming IMF board meeting, with an additional $600 million in November, followed by equal portions of $350 million every six months subject to IMF reviews.
This positive development has resulted in a fourth consecutive day of strengthening for the cedi, reaching a rate of 10.95 per dollar as of 9:57 a.m. in Accra.
According to Daniel Kavishe, an African economist at Rand Merchant Bank, if Ghana receives the initial funding and market sentiment remains positive, the cedi is likely to continue appreciating and potentially trade below 10 against the dollar.
Similar reactions have been observed in other markets that received IMF programs with immediate disbursements of funds.
Although an IMF spokesperson has confirmed the board meeting on Wednesday, they have refrained from providing details on the exact amounts until after the meeting concludes.
The IMF funds will play a crucial role in replenishing Ghana’s foreign exchange reserves, which have declined by almost 50% since their peak in August 2021.
These reserves were utilized by the central bank to alleviate pressure on the cedi following a debt default experienced by the country, as explained by Kavishe.
Ghana is utilizing the Common Framework of the Group of 20 to restructure its debt, as part of its efforts to secure the IMF program.
This mechanism aims to enhance coordination between traditional sovereign creditors like the Paris Club and newer lenders such as China, which has emerged as a significant financier for emerging economies. Zambia and Ethiopia are also employing this framework to restructure their debt obligations.