IEA outlines 17 measures to halt cedi depreciation

IEA outlines 17 measures to halt cedi depreciation

The Institute of Economic Affairs (IEA), a political economy think tank, has proposed 17 practical measures to stabilise the Ghana Cedi against the United States dollar. 


The proposals, which cut across short, medium and long-term measures, include the Ghanaian ownership of economy, industrialisation, acceleration of external debt restructuring, the enforcement of foreign exchange (forex) market regulations, checks on illegal forex dealings, repatriation of company profits and dividends, regulation of forward forex market trading and the maintenance of fiscal discipline.

The rest are limitation of monetary financing, promotion of remittances, issue of diaspora bonds, building up reserves, dollarisation, adoption of currency board, industrialisation and expansion of export earnings. 


The IEA said there was a need for a strategic local ownership strategy to ensure that major sectors of the economy were owned by Ghanaians so that earnings from those companies would stay in the country and contribute to the development of the economy.

That, it said, would ultimately boost the country’s forex supply from exports and reduce payments for imports, with a potentially positive impact on the exchange rate. “The foregoing is a wide-ranging menu of options for stabilising the cedi on a more permanent basis. The menu is not exhaustive. They represent a broad range of options to select from,” the political economy think tank stated. 


The Ghana Cedi has in recent times suffered a series of depreciations, thereby affecting the prices of almost all goods and services produced or imported into the country.

Using Bank of Ghana’s (BoG’s) official figures, for instance, the IEA said in 2022, the cedi depreciated by 30 per cent against the dollar; in 2023, it depreciated by 27.8 per cent, and this year up to May 16, it has depreciated by 13.7 per cent.

In a statement issued in Accra yesterday, the think tank charged the Bank of Ghana (BoG) to use its Economic Intelligence Unit (EIU) to collaborate with the security agencies to monitor acts of illegal forex transfers through banks, forex bureaux and other channels as well as money laundering to reduce the demand for it.

Checking the illegal forex dealings, it said, would help stem the demand tide, thereby helping to address the cedi’s depreciation against the US dollar.


It said the measures to address the incessant depreciation must aim at dealing with the underlying determinants of forex demand and supply and that the measures must also have timelines, which it had conveniently categorised into the fire-fighting, short-term, medium-term and long-term phases.

The measures for those phases, it said, were not necessarily to be undertaken sequentially and that many of them were required to begin now and run simultaneously to achieve maximum impact.

“Fire-fighting (or immediate) phase. We decided to include this phase to answer the question often put to us as to what we can do immediately to stop the “bleeding” of the cedi. Obviously, the options here are limited,” it said.

However, the immediate option could be for the government to engage with both the International Monetary Fund (IMF) and the external creditors to reach an early agreement on the external debt restructuring exercise, the IEA stated. 


That, it said, would allow the IMF to release the third tranche under the Extended Credit Facility (ECF) programme and that the IMF release, in turn, would unlock funds from other development partners such as the World Bank, African Development Bank and bilateral creditors.

“Those funds would boost BoG’s reserves, allowing it to provide higher liquidity to the forex market to calm the current panicky and speculative situation,” it said. The second option, the IEA pointed out, was for the BoG to step up the enforcement of forex market regulations.

The regulations include forex carry-on limits for travellers; supportive documentations for forex purchases and outward transfers; non-pricing of goods and services in foreign currencies; non-payment of forex to Ghanaians for their services and trading in forex.

Enforcing those regulations, it said, would generally limit forex demand. “We would, however, caution BoG to proceed cautiously and, in particular, operate secretly so as to not give a sense of desperation on its part as this could lead to increased speculative demand for forex and also drive forex activities underground,” it said.


The IEA outlined some short-term (2024-2025) measures that could be taken towards boosting the foreign currency supply and controlling demand. The policy think tank said foreign companies repatriated their profits and dividends annually, usually during the first quarter of every year, and that bunching those transfers together put immense pressure on forex demand and the exchange rate.

Therefore, it would be best for BoG to negotiate with the foreign companies to stagger the repatriation of their profits, dividends and other transfers to their parent companies and branches to ease the seasonal pressure on the forex market.

The funds awaiting transfer, it said, could be lodged with BoG and attract an agreed interest, pending repatriation. “Forward forex trading occurs where companies bid for future supply of forex from banks based on rates the parties agree today.


Given the constant current shortage and perceived future shortage of forex liquidity, the forward rates tend to be quite elevated. This practice prevails particularly with the oil marketing companies (OMCs), which continually buy forex forward to meet their future import requirements,” the IEA explained.

It said the forward exchange rates tended to affect current or spot rates and it was important for BoG to strictly regulate the forward market trading to limit speculative activities and their effect on current and future exchange rates,” it said.

Fiscal discipline

The IEA said maintaining fiscal discipline, where the government kept to the statutory deficit ceiling of five per cent of Gross Domestic Product (GDP) was, therefore, critical for controlling forex demand pressures and the exchange rate.

It said since Ghanaians in the diaspora had been sending increasing amounts of remittances home to support their families and undertake their personal projects, another vehicle to tap diaspora capital into the country was through the issuance of diaspora bonds by the government.


The diaspora would purchase the bonds that would be guaranteed by the government and/or BoG and pay periodic interest to bondholders.


It proposed that BoG should progressively build up its forex reserves to at least 70 per cent of the currency in circulation over the medium term to provide adequate cushion for the cedi and that the build-up could be made from Ghana’s own forex receipts.

It stressed the need for the country to take the necessary measures to expand, diversify and add value to its exports and that cocoa, rubber, minerals and oil were prime candidates for local processing and value addition before exporting them.

“The reason for our heavy reliance on imports is our narrow industrial base. We need to expand our industrial base to produce selected goods for local consumption — to reduce forex demand — and for exports, including to the AfCFTA market, to increase forex earnings and, thereby, foster exchange rate stability,” the think tank said.


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