Fitch Sees Uneasy Ghana-IMF Union as Nigeria Faces Oil Drop

Nigeria will try to keep the naira stable before an election, using its foreign-currency reserves amid falling oil prices, while Ghana may have to wait for an International Monetary Fund bailout, Fitch Ratings Ltd. said.
“The Ghanaians will have to do more than what they think is necessary and it’s not going to be easy,” Richard Fox, London-based head of Middle East and Africa sovereign ratings, said in an interview in Johannesburg on Oct. 22. “When the oil price falls, there is negative pressure on the naira and we have started seeing that.”
Ghana is turning to the IMF as it struggles to narrow a budget deficit and curb spending that prompted Fitch to cut the country’s debt outlook to negative in March. Nigeria, the continent’s biggest crude producer, relies on oil for about 80 percent of government revenue and has seen foreign-exchange reserves fall for 10 days as it pumps dollars into the market to defend the naira amid a global drop in crude prices.
Nigeria’s naira is down 2.8 percent this year against the dollar. Ghana’s cedi is the worst performer in Africa in 2014, weakening 26 percent.
In Ghana, the world’s second-biggest cocoa producer, the IMF “is looking for some pretty tough upfront fiscal adjustment, which was far beyond what they were planning,” Fox said. “There’s a big gap between them.”
The cedi strengthened 15 percent since Aug. 4, when President John Dramani Mahama ended four months of contradictory statements on whether Ghana would seek IMF aid. It gained 0.2 percent to 3.2201 per dollar by 7:29 a.m. in Accra.

‘Take Longer’
The nation will receive about $800 million as soon as January that will help stabilize the cedi, Finance Minister Seth Terkper said in an interview with Bloomberg TV Africa in London on Oct. 20.
“It may take longer than that depending on what the Ghanaians are prepared to do,” Fox said. Fitch affirmed Ghana at B, five steps below investment grade, on Sept. 26. Nigeria is rated BB-, two levels higher than Ghana, with a stable outlook as of October 3.
The Central Bank of Nigeria will keep using foreign-currency reserves to defend the naira, Deputy Governor Sarah Alade said by phone from Abuja yesterday. The regulator has a stronger monetary policy committee now than during previous oil-price declines and it may tighten liquidity and raise interest rates, Fox said.
“They will use reserves if they think the fall in the oil price is temporary,” he said. The drop in oil prices “will have implications for the naira. They will try and keep the rate stable this side of the election,” Fox said.

Tight Ship
Nigeria is set to hold an election in February. While the government relies on oil for revenue, economic growth is driven by non-oil industries, he said. Expansion is projected to reach 7 percent this year, faster than the sub-Saharan African average of 5.1 percent, the IMF said this week. Ghanaian growth is forecast at 4.5 percent, a rate that would be below the regional average for the first time since 2007.
In April, the IMF said Ghana and Zambia are the African nations most at risk from widening deficits. Zambia is recovering from its financial crisis and Ghana can learn from Africa’s second-biggest copper producer, Fox said.
Zambia has “learned from experience that if they keep a tight fiscal ship then they will get to benefit,” he said. “Zambia is a relatively positive story with a positive outlook.”
Zambia’s Eurobonds are the best performers in sub-Saharan Africa this year, returning 16 percent, according to Bloomberg indexes. Ghanaian debt earned 9.8 percent, in line with the average of 58 emerging markets tracked by Bloomberg, while Nigerian notes made 5.1 percent.
Ghana and Zambia sold international bonds this year as part of a record amount of African debt sales. With the Federal Reserve tapering stimulus that drove demand for emerging-market assets, sales may not be at the same level in 2015, Fox said.
“Most of these countries are still far more reliant on official multilateral assistance than they are from Eurobond issuance,” he said. “It’s quite possible that you will get lower issuance next year.”

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