Economist blames gov’t as Cedi depreciates to record time high

Adnan Adams Mohammed

The local currency, the Cedi has over the few weeks recorded a record time depreciation against major international trading currencies, especially the US dollar. On average it lost value of 0.93 percent starting second week in November till mid-December, according to Bank of Ghana (BoG) data on the movement of the currency.

The cedi as at December 13, 2019, was trading at US$1 to GH¢5.57, according to BoG data. On year-on-year analysis, the cedi lost almost 13% of its value to the US dollar compared to the same period in 2018, when it shed about 8.2% to the US dollar. The rate of depreciation is the highest in the last four years.

An Economist has attributed the cedi’s depreciation to the failure of government to effectively execute ideas and plans to sustain the currency.

“It is more about getting to work and not so much about getting new ideas. We have not been able to walk our talk over the years. It is about time we start getting to work,” Prof Godfred Bokpin, an economist at the Univeristy of Ghana said on a TV program, last week.

Discussing the rate of the cedi depreciation, Prof Bokpin stated that ideas on how to appreciate the cedi have always been available but little efforts have been invested to achieve its purpose.

He noted that the cedi’s instability is taking a toll on the economy and investment opportunities in the country.

“We have not been able to diversify the economy, increase our local content, do more export and it is catching up with us,” he stated.

From 2016 to 2018, the cedi depreciated by 9.6 per cent, 4.9 per cent and 8.4 per cent respectively.

The current depreciation comes at a time when the International Monetary Fund (IMF) has renewed calls on BoG to limit its intervention in the currency market to help “increase international reserves.”

In a statement to conclude the 2019 Article IV Consultations, the fund said its directors “stressed the need to increase international reserves by limiting central bank intervention and to entrench monetary financing limits in domestic law to protect the Bank of Ghana’s balance sheet and strengthen the inflation-targeting framework.”

Although a perennial challenge, the Head of Research at BoG, Mr Philip Abradu-Otoo, said the currency depreciation was largely due to a recent adjustment in the central bank’s reference rate on foreign exchange and the pressure that the government’s revenue mobilisation and expenditure choices were exerting on the economy.

“We moved our reference rate up and that has sent some false signal to the banks that rates will have to go up,” he said in an interview.

“Also, from the monetary side, we do not see any liquidity injection from the side of the central bank to which someone will say that there is liquidity to the economy and that money is chasing these dollars and so you need to look at the side of the fiscals.

“What you need to ask yourself at this stage is whether fiscal implementation is injection some noise into the system,” he said, explaining that the imbalance in revenues and expenditures was a source of uncertainty to the economy.

The 2020 budget showed that the fiscal deficit for the first half of 2019 was three per cent of gross domestic product (GDP), above the period’s target of 2.7 per cent of GDP.

A recurrent bane to the economy, the cedi depreciation mostly becomes intense in the last quarter of the year when traders and manufacturers compete for foreign currencies to re-stock for the festive season and the forthcoming year, while multinational firms look to repatriate their profits.

However, with data from the Ghana Shippers’ Authority (GSA) showing that imports declined by 11 per cent in the first half of the year, the President of the Ghana Union of Traders Association (GUTA), Dr Joseph Obeng, said it could not be the case that the current depreciation was caused by increased imports.

Although trade statistics for the second half of the year are unavailable until the end of the year, Dr Obeng said GUTA’s interactions with state agencies in the trade facilitation business showed that imports remained bearish through to November 2019.

“The pressure on the currency must be coming from somewhere else,” he said, pointing to repatriation of profits by largely foreign-owned firms.

Mr Abradu-Otoo of the Research Department of BoG said beyond the cedi suffering negative sentiments from the fiscal position of the economy and increased demand for foreign exchange to repatriate, the recent rise in government payments in foreign currencies was also to blame.

“Our understanding is that some payments are being made in relation to energy sector activities and some of these people have liabilities in forex and it is part of the problem,” he said.

Going forward, he said BoG would continue to support the currency but in a way that would protect the national reserves against “unnecessary burning.”

Looking ahead, an economic analyst with Databank, Mr Courage Kwesi Boti, said he expected the pressures on the cedi that are emanating from increased sell offs and withdrawals by foreign investors at a time when foreign exchange inflows were bearish to continue well into next year.

He thus called for credible measures that can build up reserves to help provide comfort to investors.

“An early intervention, maybe from a Eurobond issuance or any other source of foreign exchange outlay, may be necessary to sustain the currency.

“Otherwise, the situation may be worse in 2020 than we are seeing,” he said.