Ghana, the country that epitomized the 'Africa rising' narrative of strong economic growth and improved governance, is to seek help from the International Monetary Fund.
The reversal of fortunes underlines the challenges the continent still faces. The west African nation will turn to the fund for financial assistance after its currency plunged roughly 40 percent this year against the U.S. dollar, making the cedi the worst performing currency in the world in 2014. Ghana is the second sub-Saharan African country to turn to the IMF for help this year, after Zambia announced in June that it would seek talks with the Washington-based multilateral body.
Accra's request for a bailout is likely to shake some investors, as Ghana was seen as a model of economic and political development in the continent. In 2007, it become the first country in sub Saharan Africa, apart from South Africa, to tap the sovereign bond market, raising $750 million through a 10-year bond.
The IMF warned African countries this year that economic mismanagement risked "spoiling" the virtuous circle of rising growth and better governance that became known enthusiastically as "Africa rising". Although the continent is still home of some of the world's fastest-growing economies, issues including conflict, strikes, overspending and the slow pace of reforms have put a brake to expansion.
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The opening of talks with the fund about a financial rescue is a volte-face for John Mahama, Ghana's president, who has long insisted that his country would resolve its economic problems using homegrown solutions.
Critics said Mr Mahama's government has been slow to cut public spending to bring down the double-deficit fiscal deficit, although some of its policies have also been praised.
Seth Terkper, Ghana's finance minister, said the prime minister had "directed [the government] to open discussion with the IMF" to support the country's growth program, adding that the most immediate concern was "to stabilize the cedi and reduce the [fiscal] deficit".
The Ghanaian currency has sunk nearly 40 percent this year to 3.7 against the U.S. dollar, a bigger slide than even the war-ravaged Ukrainian hryvnia and the Syrian pound.
Nearly three years after the start of oil production in Ghana, which was meant to strengthen the country's fiscal position, the country faces a double-digit fiscal deficit after a 75 percent increase in public salaries over two years. Inflation is rising rapidly as the cedi plunges.
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Ghana ran a fiscal deficit equal to 10.1 percent of gross domestic product in 2013. The government has promised to cut the deficit to 8.5 percent this year but observers believe it would struggle to reduce it below 10 percent.
The IMF warned, In its annual review of the Ghanaian economy in May, that under current policies, the fiscal deficit would stay at about 10.2 per cent this year and 9.3 per cent in 2015, far above the official target.
Mr Terkper said: "We would like to have a complementary plan with the World Bank and the African Development Bank [on top of the IMF program] to achieve our objective to become an upper middle-income economy."
Ghana has this year repeatedly postponed a return to the bond market. But Mr Terkper said the country still planned a $1 billion, 10-year bond in the next few weeks. "The market will take a better view of our policies when we are talking with IMF," he said.