Ghana cedi becomes world’s best-performing currency as IMF approval for bailout expected

Ghana’s currency, the cedi, has emerged as the top-performing currency against the US dollar in the past six months, bolstered by investor optimism that the country is on the verge of obtaining approval from the International Monetary Fund (IMF) for a $3 billion bailout.

Since November, the cedi has gained an impressive 33%, outpacing around 150 global currencies tracked by Bloomberg.

Ghana’s dollar bonds have also shown a strong performance, generating a return of nearly 12%, surpassing the 3.6% average for emerging and frontier market peers in a Bloomberg index.

Ghana is anticipating the immediate disbursement of the first tranche, totaling $600 million, upon the IMF board’s meeting on Wednesday, as stated by Mohammed Amin Adam, the Minister of State for Finance.

The subsequent $600 million is expected in November, with the remainder disbursed in equal portions of $350 million every six months, contingent upon IMF reviews. This positive development has contributed to the cedi’s fourth consecutive day of strengthening, reaching 10.95 per dollar as of 9:57 a.m. in Accra.

Daniel Kavishe, an Africa economist at Rand Merchant Bank, suggests that if the authorities receive the initial funding tranche and market sentiment remains positive, the cedi is likely to continue appreciating in the coming days, potentially trading below 10 against the dollar. Kavishe points to similar reactions witnessed in other markets that received an IMF program accompanied by an immediate disbursement of funds.

While an IMF spokesperson confirmed the Wednesday board meeting, they refrained from commenting on the exact amounts to be received until the meeting takes place.

The IMF funds will play a crucial role in replenishing Ghana’s foreign exchange reserves, which have declined by nearly 50% since their peak in August 2021. These reserves were utilized by the central bank to alleviate pressure on the cedi after the country experienced a debt default, as explained by Kavishe.

Ghana is utilizing the Group of 20’s Common Framework to restructure its debt as part of its efforts to secure the IMF program. This mechanism aims to enhance coordination between traditional sovereign creditors such as the Paris Club and newer lenders like China, which has emerged as a significant financier for emerging economies. Zambia and Ethiopia are also employing the framework in their efforts to restructure their debt obligations.