Is the Ghanaian Cedi on a free-fall? Some seems to think so. According Bloomberg, the Ghanaian Cedi is the worst performing currency among top currencies in Africa. Out of 15 top currencies studied by Bloomberg, the Ghanaian Cedi was at the bottom. This is a clear evidence of a free-fall. Incidentally, the Ghanaian Cedi in 2019, broke record as best performing currency against the Dollar in the world. Even at the beginning of the year, in January 2022, the Dollar traded at Ghc6.02 to $1 Dollar. Today, the same currency is currently trading at Ghc7.22 to $1 Dollar. One would be forced to ask, ‘What happened?’
Loss of Investors’ Confidence
According to Ghanaian Professor of Economics, Professor Bokpin, investors lost confidence in Ghana’s fiscal outlook. He further stressed that there was serious doubts in the fiscal sustainability path as outlined in the country’s 2022 budget. Thus, many investors exit the market before things gets worst, he added.
Russia-Ukraine War
Even though Ghana is currently not involved in a war, the current global tension caused by the Russia-Ukraine war is another reason the Cedi is currently on a free-fall. Ghana, like many African countries is gravely impacted by the ongoing war that has stifled any chance of bilateral trade, with the two warring countries that control 25% of the world grain supply. This trade situation has led to stifled economic activities, such as export and import to these countries.
Lack of Sustainability
According Professor Bokpin, Ghana borrowed heavily years back to shore up its international reserves. This, according to him is not sustainable, if the performance of the Cedi is not from structural reforms.
WAY FORWARD
The Centre for Economics, Finance and Inequality Studies, believes that the government must take proactive measures in tackling Ghana’s current economic quagmire, and itemized some systematic steps it should take to arrest the situation.
- Increase In Governments Purchase of Domestically Produced Goods
Centre for Economics, Finance an Inequality, believes that the government as the biggest consumer must invest heavily in the purchase of domestically produced goods, as opposed to buying foreign made goods.
- Increase in Short Term Interest Rate
Professor Bokpin, suggested that the Central Bank should increase short-term interest rate, to mop up liquidity from the market. As the Cedi depreciates, people tend to convert their monies into foreign currency. Hence, more pressure will be on the Dollars, which forces the Cedi to underperform. He believes that as government increases short term interest rate, more people will gradually release their monies to the Central Bank. This he believes needs to be done quickly.
- Balanced Monetary and Fiscal Policy.
According an article written by Adu Awusu Sarkodie, of Unversity of Ghana, in TheConversation.com Ghana, as a matter of urgency must revise the design of electronic levy (e-levy), and pass it within the shortest possible time to access Eurobonds. The passage of the e-levy, and the reversal of the 50% benchmark values at the ports, will signal to the international investors that the government of Ghana, is on fiscal consolidation path and that it can raise domestic revenues to service its rising debts.
- Industrialize Ghana’s industrial sector is largely underdeveloped.
As a long term solution, the government must invest heavily in the industrial sector to add value to its exports, increase production and cut down on imports, so there will be enough foreign exchange in the country. In this regard, the agricultural sector should be a focal point. Also, the one-district-one-factory policy of the government, should be improved upon to accelerate Ghana’s drive for industrialization.
- Domestic Generated Revenues [DGR]
The government must find ways to increase its domestic generated revenues, to enable it service its foreign debts and to finance its development, without heavy reliance on borrowing. The government should also pay attention to other sources of revenues, such as tax exemptions, property tax and natural resources shore up its domestic revenue generation
