The Minority in Parliament has attributed the fast depreciation of the cedi to the gross mismanagement of the economy and wrong policy choices by the government.
It said the sharp cedi depreciation has worsened the country's economy, which has resulted in the collapse of companies, loss of jobs and decreasing investor confidence.
Speaking at a media encounter on the state of Ghana's economy in Accra on Wednesday, the Minority Spokesperson on Finance and Ranking Member on the Finance Committee of Parliament, Mr Cassiel Ato Forson, said "things are falling apart and the expected Gross Domestic Product (GDP) growth rate of 8.8 per cent cannot be achieved."
He said the worsening depreciation of the cedi with its attendant disruption of macro and micro economic performance has affected the credibility of the budget statement and economic policy of government for the 2019 financial year.
Mr Forson therefore asked President Nana Addo Dankwa Akufo-Addo to present a new budget or statement to review the micro and macro-economic targets and outline measures to address the shortfalls.
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He again cautioned the government against taking desperate measures to arrest the falling cedi since those measures would worsen the situation.
It has been reported on various media platforms, both locally and internationally, that the cedi/US dollar exchange rate is expected to reach about GH¢6 per dollar by the end of the third quarter of 2019.
The cedi/dollar exchange rate as of last Tuesday stood at GH¢5.65 per dollar and GH¢5.60 per dollar at Fidelity Bank Ghana Limited and Ghana Commercial Bank respectively.
The media encounter, which looked at the various sectors of the economy, was attended by journalists, leaders of trade associations and leaders of labour unions.
Causes of the cedi depreciation
Mr Forson said the depreciation of the cedi could be attributed primarily to portfolio outflows (as foreign investors repatriated coupons and principals) and a large current account deficit mainly due to large trade service charges and interest payments.
"The current account at end-December 2018 posted a deficit of 3.2 per cent of GDP. Thus, within the context of a weak current account balance and increasing portfolio outflows, the Bank of Ghana’s large foreign exchange market interventions, that lowered its gross international reserves significantly, could not arrest the depreciation of the cedi, which reached nine per cent by end-year. Hence, exchange market pressures have persisted into 2019. Other causes of the exchange rate depreciation include", he said.
Mr Forson faulted the government for giving a projected overall deficit of 4.2 percent of GDP (excluding financial sector costs) for the 2019 fiscal year.
He said that policy announcement was sending negative signals to the investor community because it is inconsistent with government policy decisions.
"The Finance Minister and his team should have known that our investors are aware that the projected deficit level cannot be achieved given their history of weak fiscal performance on the back of unrealistic revenue assumptions, expenditure underperformance, and the accumulation of arrears", he said.
Mr Forson said the proposed financing options for 2019 further gives the indication that the deficit level will exceed 4.2 per cent of GDP (excluding financial sector costs).
Besides, he said, the government is about to give a guarantee to the Ghana National Petroleum Corporation (GNPC) to borrow about $250 million for government using royalties from oil revenue as collateral, which is against the provisions of Petroleum Revenue Management Act (Act, 815).
Mr Forson said government is also over-leveraging mineral royalties as collateral to borrow $200 million, which is against the Public Financial Management Act (Act, 921), and the Ghana Education Trust Fund (GETFund) has also been given the guarantee to borrow $1.5 billion.
"Again, the government is borrowing $2 billion from Synohydro by leveraging our bauxite concession that is yet to be mined. Furthermore, government has recently given Ghana Amalgamated Trust Limited (GAT) a guarantee to borrow GH₵2 billion to shore up the capital of some indigenous banks that could not meet the GH₵400 million minimum capital requirement set by the Bank of Ghana", he said.
Mr Forson said the government has not been transparent with investors regarding the recent policy announcements and financing decisions, and indicated that investors are expressing mixed feelings of heightened uncertainty, and they might leave the economy because the financing options are expected to exert further exchange rate pressures.
He said the unrealistic fiscal projections and less-than-full disclosure of financing options constitute enough grounds for investors to further repatriate their capital.
Mr Forson said the Bank of Ghana, which is expected to implement independent monetary policies in order to deliver on its primary mandate of maintaining price stability, has thrown caution to the wind and has begun to implement loose and populist monetary policies.
For instance, he said, the Bank has adopted an inflation-targeting (IT) framework for the conduct of its monetary policy, and indicated that while the Bank’s own research papers/ studies point to the fact that risks from both external and domestic sources have heightened and suggested the halting of the easing of the monetary policy, the Bank has decided otherwise.
Impact of cedi depreciation
Mr Forson expressed worry that the usually outspoken Vice President Dr Mahamudu Bawumia has gone into ‘self-imposed exile’ on economic matters, perhaps following the massive public backlash he has received which has made him the butt of all jokes in both traditional and social media.
He said Dr Bawumia"s misleading claims about the economy while in opposition and the propaganda-laden lectures organised to convey the impression of some exceptional knowledge about economic management on his part, have combined to expose him to public ridicule in the wake of the disastrous fall in the value of the Cedi.
"His now famous quote 'When the fundamentals are weak, the exchange rate will expose you', has become the very benchmark against which the performance of the Akufo-Addo government is being assessed and they have been found wanting. The fast depreciation of the Cedi is an indication that the fundamentals of the Ghanaian economy are not just weak but have been completely depleted. The real sector is expected to suffer the consequences of the depreciation of the Cedi", he said.
Mr Forson said the depreciation of the Cedi is expected to increase the cost of doing business, and indicated that domestic businesses that rely on imported raw materials will be compelled to pay more in cedi terms for their raw materials.
That, he said, will push up the cost of production, make domestic businesses less competitive, and eventually push them out of business.
Mr Forson said the depreciation of the Cedi is also expected to add up to public debt recorded in cedis due to increases in the cost of debt service on dollar-denominated debt.
"Public debt will go up when one considers all the new borrowings and sovereign guarantees issued by the current NPP government. They have plan issuing US$3.0 billion Eurobond. By the time this is realized they would have added additional GH¢6.0 billion to the debt stock. When one considers this together with the GAT guarantee of GH¢2.0 billion and many others issued, the NPP government will be making history of adding over GH¢50.0 billion to the public debt stock every year", he said.
Mr Forson said the rapidly depreciating exchange rate cannot be said to be accompanied by 9.2 per cent inflation rate since an economy cannot be externally unstable and internally stable.
He said the depreciation of the Cedi is expected to build inflation pressures because it feeds into fuel prices, energy cost, transport cost, utility prices, cost of import duties and imported food prices.
Mr Forson said the issuance of the 2019 Eurobonds as approved by Parliament of US$3 billion, at a net of $1 billion will only improve short term liquidity but will not address external vulnerabilities. “We want to use this opportunity to caution government not to give false hope to the citizens since this will not address the depreciation of the currency.”
Five questions to Dr Bawumia
Mr Forson asked Dr Bawumia, who is the head of the government Economic Management Team, to provide answers to the following five questions.
Why would an independent central bank with focus on price stability decide to reduce the monetary policy rate against its own research findings?
Why would the BoG decide to lower the policy rate in the face of dwindling net international reserves and a rising interest rate abroad?
Why would the central bank decide to reduce the monetary policy rate in favour of growth, which has been projected to be higher than the previous year’s, while the local currency is under pressure?
Why would the BoG decide to lower the policy rate in the face of excess liquidity in the banking sector emanating from banks increasing their minimum capital by over 100 percent, while the local currency is fast depreciating?
How could a rapid exchange rate depreciation be accompanied with a single digit inflation rate as captured by the posted macroeconomic indicators?