Ghana Cedi loses 44% value in 17 months

cedisThe local currency continues to attain record lows on the back of its poor performance which began at the beginning of January 2014 – losing cumulatively about half of its value since then.

The fall in the value of the cedi has put significant pressure on the pockets of consumers as import inflation gathers momentum amidst increasing cost of living and doing business fueled by the unending erratic power supply.

Analysis by the B&FT shows that since January 2014, the cedi has lost 43.8 percent of its value to the US dollar despite a raft of measures introduced by the central bank and an International Monetary Fund programme to stem the rapid depreciation.

Last year the cedi lost about 31 percent of its value after a string of poor performances largely in the first half of the year. The slide prompted the central bank to introduce forex restrictions which market players accused of being counterproductive.

The measures were later withdrawn and it took the combined proceeds of US$3 billion from the Eurobond and the cocoa syndicated loan to breathe a new lease of life into the cedi in the second half of 2014.

But despite announcing the Fund’s programme and subsequent arrival of the first tranche of US$114.8 million, the cedi’s remarkably poor performance has seen it lose 18.6 percent to the greenback this year alone.

The central bank seems helpless in containing the slide of the cedi with policies either hit and miss or largely misguided as the fall in the value of cedi is nearing the frightening level it reached last year which prompted the introduction of some unconventional measures such as the forex restrictions described by many as a failure but trumpeted by officials of the Bank of Ghana as a success.

Comparatively, within the same period last year – that is between January and May 26 – the cedi performed poorly when it lost 23.3 percent of its value.

The cedi’s abysmal performance since January 2014 has largely stoked inflationary pressures. Within that same period, inflation has risen from 13.8 percent to 16.8 percent as at last month.

Governor of the Central Bank Dr. Kofi Wampah at the MPC meeting earlier this month said developments in the foreign exchange market indicate a further weakening of the domestic currency in 2015.

While government had insisted the first tranche should offer some much-needed balance of payments support, economists at InvestCorp argue that the inflows from the IMF, which average US$306million per year, are “limited compared to the financing gap of about US$2billion in the 2015 budget and an expected current account deficit of about US$3- 4billion in 2016”.

Just like InvestCorp, most analysts view the cedi’s weakness as a product of macroeconomic- instability underlined by high fiscal and current account deficits, which necessitated the country seeking a bailout from the Bretton Woods organisation.

The Accra-based investment advisory firm warned that the local currency is further threatened by government’s debt financing strategy – which has seen the increasing use of US dollar denominated debt as a refinancing strategy.

But in its April report, InvestCorp said: “While concern about currency risk is. real for Ghana, there is clear evidence of the yield on the benchmark 91-day Treasury bill having a sustained edge over the corresponding depreciation of the cedi across a 3-year cycle. Essentially, investors in

Ghana’s domestic debt market could be compensated for currency risk with well-structured debt instruments over the medium-term”.

Slowing momentum

Ghana’s economic growth rate topped 9 percent in 2011, but 1 three difficult years followed that were characterised by slowing I activity, accelerating inflation, J and rising debt levels and r financial vulnerabilities.

The country’s economic prospects were put at risk by the emergence of large fiscal and — external imbalances, as well as by electricity shortages.

Growth decelerated markedly in 2014, to an estimated 4.2 percent, driven by a sharp contraction in the industrial and service sectors. This was largely L due to the negative impact of the currency depreciation on input costs, declining domestic demand, and increasing power outages.

Inflationary pressures rose on the back of the cedi’s large depreciation and financing the fiscal deficit by the Bank of Ghana. Despite several hikes in policy interest rates in2014, which brought them to 21 percent, headline inflation reached 17 percent at end-2014 – well above the 8 +/- 2 percent official target range.

– BFT

POST TAGS

ABOUT: Nana Kwesi Coomson

[email protected]

An Entrepreneur, Corporate Social Responsibility, Corporate Communications Executive and Philanthropist. Editor-in-Chief of www.233times.com. A Senior Journalist with Ghanaian Chronicle Newspaper. An alumnus of Adisadel College where he read General Arts. His first degree is in Bachelor of Arts - Political Science (major) and History (minor) from the University of Ghana. He holds MSc in Corporate Social Responsibility (CSR) and Energy with Public Relations (PR) from the Robert Gordon University in the United Kingdom. He is a 2018 Mandela Washington Fellow who studied at Clark Atlanta University in USA on the Business and Entrepreneurship track.

View all posts by: Nana Kwesi Coomson  

Leave a Reply

Your email address will not be published. Required fields are marked *

ABOUT 233TIMES

233times is a Ghanaian media house which serves as a major source of exclusive interviews ,music and video downloads, news and more.

233times reports on major events,news covering entertainment, politics, sports, business, technology, etc from within Ghana, Africa and beyond.

We have a platform for the amateur artistes to portray their staggering talents ...more...

CONTACT US

For further enquiries, please contact us via our contact us page link: CONTACT

WE ON SOCIAL MEDIA. FOLLOW US


To advertise with us or make enquiries, please visit 233times.net/advertise or call Selorm (Selorm) | Selorm (Nana Kwesi)