The quest for a stable cedi
Since the beginning of the year, the performance of the cedi against the major foreign currencies, especially the dollar, has come under sharp focus.
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The cedi didn’t start the year well, prompting concerns from Ghanaians. For instance, in less than three months, the cedi cumulatively lost 8.6 per cent of its value to the US dollar. Typically, when the cedi is not doing well, it has ramifications on general prices of goods, since our economy is import led.
For instance, the prices of petroleum products are directly affected when the local currency depreciates against the dollar. It also a fact that when the cedi depreciates against the dollar, it automatically pushes the public debt up in nominal terms, especially the dollar-indexed component.
Companies which by the very nature of their operations have to import almost 90 per cent of their input are exposed to foreign exchange losses in the event of the cedi getting weaker against the US dollar. The resultant effect means that all their gains will be wiped out through foreign exchange losses.
Undoubtedly, with a fast rate of cedi depreciation, there is a high-risk inflation rate.
Thankfully, things are getting better and the cedi’s slide against the dollar has ended. Investors have responded positively, with the exchange recovering in recent weeks.
The latest auction of government bonds saw a record level of issuance amid high foreign investor participation.
We are happy about this positive development because it bodes well for the economy. A strong cedi means that the economic management is taking shape.
Even though we are gladdened by the recovery of the cedi in the short term, we want to urge the government to continue to work assiduously to ensure that the currency becomes strong for the rest of the year.
It is also important to state that beyond the short term, the government must take advantage of the enormous goodwill to ensure that the perennial challenge of cedi depreciation is fixed.
We believe that one of the surest ways of creating a stable currency is by ensuring that government remains committed to its fiscal consolidation objective.
Substantially reducing the fiscal deficit to the target of 6.5 per cent of Gross Domestic Product by the end of the year would significantly reduce the rate of borrowing and the rate of debt build-ups and help stabilise the economy to create the enabling environment for ambitious growth policies to succeed later.
We believe that while reducing the fiscal deficit will in the long run help to improve the supply side of the major currencies, especially the dollar, it is instructive for government also to adopt effective policies and measures to address the demand side.
As a nation, our insatiable need to import almost everything is reaching an intolerable level. Government must be bold to address this canker through effective policies and measures.
