Business News of 2014-04-22

Structural imbalance affecting cedi – Economist

Dr. Nii Noi Ashong, an economist, says there is a fundamental structural imbalance between demand of foreign exchange and its supply in Ghana.
He said such imbalance exerts pressure on the Ghana cedi and affects the efficient development of the domestic foreign exchange market.
Speaking at a seminar organized by the Institute of Economic Affairs (IEA) in Accra recently on the theme, ‘The BoG’s Response To The Cedi Crisis: An Interim Review And Way Forward,’ Dr. Ashong said Ghana’s large current account deficits are mainly financed by Official Development Assistance (ODA) and private financial capital inflows.
“This means that despite the underlying structural depreciating pressures on the cedi, there is also a built-in volatility of the exchange rate to changes in market expectations and sentiments.
“Bank of Ghana (BoG) must therefore aim at reasonably high holdings of international reserves to cushion the nation against any potential pressures that may arise from operating liberalized open capital account,” he said.
Dr. Ashong, who is also Deputy Rector at the Ghana Institute of Management and Public Administration (GIMPA), said “there are two aspects of the foreign exchange reserves that the BoG needs to hold onto effectively. These involve the amount of foreign exchange reserves to be accumulated and the strategy for intervention – amount and timing in the foreign exchange market.
Dr. Ashong also mentioned that the high economic growth rates recorded in Ghana since 2009 have brought in its wake an increase in economic activity and a corresponding high demand for imports.
Dr. Ashong said Ghana’s current extended credit facility (ECF) programme with the IMF calls for a minimum target of foreign exchange reserves to cover at least three months of import of goods and services.
Source: Daily Guide
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