The local currency is currently in a severe crisis, the Director of Research at the Institute of Economic Affairs (IEA), Dr John Kwakye, has said.
Dr Kwakye explained that the Cedi depreciated by 30% in 2022 and 28% in 2023, and in the first 5 months of 2024, it has depreciated by 14%.
This, he said, points to a currency in crisis.
“Unfortunately, we are just waiting for releases from IMF and other development partners to support the cedi. That’s pitiful!” he wrote on X.
The cedi depreciated by 30% in 2022 and 28% in 2023, and in the first 5 months of 2024, it has depreciated by 14%. This points to a currency in crisis. Unfortunately, we are just waiting for releases from IMF and other development partners to support the cedi. That’s pitiful!
— J. K. Kwakye (@JohnKwabenaKwa1) May 26, 2024
He added “The cedi is now worth 0.01% of its value against the dollar in 1983, when Ghana adopted a flexible exchange rate system.
“It’s almost near extinction! IEA has recently put out a 17-option plan for stabilising the cedi on a lasting basis. But who is listening?”
The cedi is now worth 0.01% of its value against the dollar in 1983, when Ghana adopted a flexible exchange rate system. It’s almost near extinction! IEA has recently put out a 17-option plan for stabilising the cedi on a lasting basis. But who is listening?
— J. K. Kwakye (@JohnKwabenaKwa1) May 22, 2024
Recently, Bloomberg analysts stated that Ghana’s cedi was in a record-breaking weakening cycle.
The currency had not gained versus the dollar in the past 22 trading sessions, the longest streak according to data compiled by Bloomberg going back to 1994.
It has declined 14% this year, a slump beaten only by currencies that have been devalued, including the Egyptian pound and Nigerian naira.
The slide had been fueled by a slump in cocoa earnings, with exports dropping by nearly a third to $508 million in the first two months of the year due to adverse weather, disease and fertilizer shortages.
Despite a temporary surplus in 2023, Ghana’s historical current account deficit is also resurfacing, signaling further challenges to the cedi, said Gergely Urmossy, emerging market strategist at Societe Generale.
The cedi’s forward curve calculation saw the currency breaching its record low of 14.6174 per dollar by the third quarter, ending the year at 15.98. FX forward pricing is calculated based on the spot rate and the interest rate differentials between the two currencies for the tenor of the forward.
Meanwhile, the Minister of Finance Dr Mohammed Amin Adam has observed that speculations on the Ghanaian market are affecting the Cedi.
He urged that the speculations should be reduced.
Speaking during his monthly press briefing in Accra on Friday, May 24, he said “There is so much speculation out there on the Cedi, so we need people to know that these speculations do not help us as a country or our Cedi.”
Dr Amin Adam further assured that the Cedi stability is expected to gain more in the medium term after the completion of the domestic debt exchange programme.
He also stated that the local currency is expected to gain as the managers of the economy make more progress on fiscal consolidation and improve on the reserves over the medium-term.
“But for recent pressures, we are seeing on exchange rate movements, the exchange rate has been largely stabilised with the depreciation of the cedi against the US Dollar halving from 54.2% at the end of Nov 2022 to 27.8% at the end of Dec 2023.
“The Cedi’s stability has continued into 2024, with a cumulative depreciation of 14.2% as of 20th May 2024, compared to 20.7% recorded in the same period in 2023. We expect the cedi’s stability to improve into the medium-term as we complete debt restructuring, make more progress on fiscal consolidation, and improve our reserves over the medium-term.”
“The recent pressures we are observing on the cedi is largely on the back of the strengthening of the US Dollar against major trading currencies, seasonal forex demand including elevated demand from corporate institutions, payment to contractors and to IPPs, high Cedi liquidity and speculation.”
