Ghana is still importing more than it is exporting hence the challenges of the Cedi, a Professor at the University of Ghana Business School, Patrick Asuming, has said.
For as long as the country depends heavily on imports, the challenges of the Cedi will persist, he said.
Also, he added, investors are concerned about the economy in an election year. These two major factors (over-reliance on imports and concerns in elections), put together, are causing the woes of the Cedi.
He observed that there is no clear solution to these two factors affecting the Cedi hence it is not clear when the problems of the local currency will be resolved.
Asked when the challenges of the local currency would be resolved, while speaking on the Ghana Tonight show on TV3 on Tuesday, May 21, Prof Asuming said “You have to look at where this rapid depreciation is coming from. Generally, the balance between our imports and exports is really the long-term driver of the currency, that’s usually true. So in a typical year, the Cedi will depreciate 5 percent.
“In our case, when you look at our trade balance compared to last year, our trade balance is lower. I think last year, in the first couple of months, our trade balance was about 1.1 percent of GDP. This year is 0.5 percent but we are still expecting more than we are importing, you do see that this year the first couple of months, our import bill is almost twice what we did last year. so there is this part.
“Then, because it is an election year, usually election years come with jitters so I think it appears investors have additional concerns about the economy. When you put all of these together it means it is a configuration of factors that are playing in the currency we are seeing and there is no clear straightforward solution and because of that, there is not so clear that there is an end in sight, unfortunately.”
Also commenting on this issue, the Chief Executive Officer of the Chamber of Commerce, Dr Mark Badu-Aboagye said the abysmal performance of the Cedi against the major trading currencies is disturbing businesses.
He said that this is certainly not a good time for businesses in Ghana owing to the free fall of the cedi.
“Not a good time for businesses. Rate of depreciation of the cedi and high cost of operating troubling,” Dr Mark Badu-Aboagye said on the Ghana Tonight show on TV3 on Thursday, May 16.
Ghana’s cedi is in a record-breaking weakening cycle. The currency hasn’t gained versus the dollar in the past 22 trading sessions, the longest streak, Bloomberg reported.
The currency hasn’t gained versus the dollar in the past 22 trading sessions, the longest streak according to data compiled by Bloomberg going back to 1994. The cedi traded 0.3% weaker at 13.9310 by 1 p.m. in London.
It’s declined 14% this year, a slump beaten only by currencies that have been devalued, including the Egyptian pound and Nigerian naira.
The slide has 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 sees 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.
In the wake of the poor performance of the Cedi, a Minister of State under the Rawlings administration, Kojo Yankah, has suggested to the government to prioritise the provision of incentives for businesses to produce more, not the introduction of taxes.
Mr Yankah indicated that taxing businesses amidst the dwindling fortunes of the local currency is only suffocating the business community.
