ANGOLA’S currency, the kwanza, and Ghana’s cedi, had a bad Friday, both falling to record lows.
Angola’s central bank devalued its currency as the drop in oil prices cut the main source of government revenue and export earnings.
The rate for the kwanza was weakened to 116.8745 per dollar on Friday, compared with 110.518 on Thursday, according to prices on Luanda-based Banco Nacional de Angola’s website. The currency dropped to 118.13 on the interbank market before paring losses to trade 6.2% weaker at 117.71 as of 2:33 p.m. in the capital, still a record low on a closing basis.
“It is rare to have such a drastic move in the kwanza,” Charlie Hampshire, the London-based head of trading at INTL FCStone Inc., which specialises in frontier market currencies, said by e-mail. “A move of this nature has not occurred since 2009.”
Ghana’s cedi, on the other hand, weakened to a record to extend its fifth week of losses on speculation that flooding across the capital will further strain the government’s fiscal deficit.
The currency of the world’s second-biggest cocoa producer dropped as much as 2.8% before paring the decline to 0.8% to trade at 4.125 per dollar at 12:36 p.m. in Accra.
That took the cedi’s loss to 2.1% this week, according to data compiled by Bloomberg. A close at this level would be the worst since May 1994 when Bloomberg began compiling the data.
President John Dramani Mahama said his government will spend 50 million cedis ($12 million), including building emergency housing, to help victims and will do whatever is necessary to prevent these floods from happening again. At least 180 people have died from the heaviest rains in six years.
“Ghana needs these floods like it needs a hole in the head,” Nicholas Spiro, managing director at London-based Spiro Sovereign Strategy, said by phone on Friday. “It comes at the worst time from a financial markets point of view.”
The cedi has slumped 22.8% this year, the worst among 24 African currencies tracked by Bloomberg.
Angola, Africa’s second-largest oil producer, is struggling to cope with crude prices that have slid more than 40% over the past year. The government in February cut its 2015 budget by 26% to 5.4 trillion kwanza ($46 billion), while predicting the fiscal gap will reach 7% of gross domestic product (GDP). The southwest African country plans to borrow $25 billion this year to plug the shortfall, according to a Finance Ministry proposal obtained by Bloomberg News.
“They’ve allowed for continual depreciation in recent months, but this move is stronger,” Samir Gadio, the head of African strategy for Standard Chartered Plc in London, said by phone. “There’s a massive black market premium and the exchange rate was not in line with fundamentals. It’s still misaligned. The balance of probabilities is” for further weakness, he said.
Finance Minister Armando Manuel said by phone he was on a trip to the Middle East and referred requests for comment to the central bank. Amelia Borja, a spokeswoman for the BNA, as it is known, didn’t answer three phone calls or immediately reply to text and e-mail messages.
Angola’s foreign reserves fell by 13% to $26.2 billion between May and the end of March, according to central bank data.
The kwanza has weakened 17% against the dollar since the end of June. That’s the fourth most among 24 African currencies tracked by Bloomberg and compares with 18 percent for Nigeria’s naira.
Angola’s gross domestic product of about $124 billion is the third biggest in sub-Saharan Africa after Nigeria and South Africa, according to the World Bank.
Ghana IMF programme
For Ghana, the biggest economy in West Africa after Nigeria, it began implementing a program with the International Monetary Fund (IMF) in April, that gives it almost $1 billion over three years to narrow its budget deficit.
The government is seeking to cut the budget gap to 7.5% of gross domestic product this year from 9.3% in 2014.
“Some people in the currency market may be thinking the government will have to spend additional funds to get help to victims of the flood,” Angus Downie, head of economic research at Ecobank Transnational Inc., said by phone from London on Friday.
“Anything that demands additional spending will add pressure on the government’s already fragile financial situation.”