Ghana's worse-than-expected budget deficit will heighten currency volatility and elevate the nation’s funding demands to finance previously undisclosed arrears of GH¢7 billion ($1.6 billion), according to Moody’s Investors Service.

The discovery of the payment arrears reverses Ghana’s progress on consolidating its fiscal deficit since 2015 under an International Monetary Fund program, Moody’s said in an e-mailed statement on yesterday. The shortfall is also weighing on debt dynamics and will undermine the cedi, “all credit negative for the sovereign,” it said.

Moody’s rates Ghana’s long-term foreign debt B3, six levels below investment grade and on par with El Salvador, Pakistan and Argentina.

Ghana’s debt will peak at more than 76 percent of gross domestic product this year before declining in 2018, the ratings agency said.

Total debt was 71.9 percent of GDP in November, according to data from the central bank. The cedi will weaken to 4.45 against the dollar this year and 4.55 in 2018, from about GH¢4.20 at the end of last year, Moody’s said.

The currency weakened as much as 0.8 percent and was trading 0.2 percent lower at GH¢4.3775 against the dollar at 10:47 a.m. in the capital, Accra. Yields on Ghana’s dollar debt maturing in 2023 added a basis point to 8.4 percent.

Economic growth will accelerate to 6.5 percent in 2017 and 7.5 percent next year, from 3.8% in 2016, Moody’s said.

IMF Talks

The IMF is in talks with Ghana as part of a three-year deal struck in 2015 after spending ballooned and revenue from commodities such as oil and gold plunged due to a global slump. The country will seek to finalize an audit of the undisclosed spending during its discussions with the Washington-based lender by Feb. 15, Minister of Finance Ken Ofori-Atta told reporters in the capital, Accra, on Sunday.

Once the financing gap is established, the government will determine how it wants to raise funds for the shortfall, Ofori-Atta said. The program may need “tweaking” in order to take care of the bigger-than-expected budget gap, he said.

“The task is a lot more than we anticipated with regards to the arrears,” Ofori-Atta said. “By the end of the IMF visit, the process of discovery and certainty and validation would have gone a long way.”

The government is in separate talks with China Development Bank Corp about the country’s financing needs, Ofori-Atta said.

“We’re meeting for a second time with the Chinese Embassy” on Monday (yesterday), he said. “We’re trying to nail down and look at an enhanced relationship with China to see how they can support the direction in which we’re now going.”