Ensure the exchange rate is subjected to intermittent shocks - Dr Atuahene

Banking consultant, Dr Richmond Atuahene, has urged government to ensure that the exchange rate is subjected to intermittent shocks to the country’s terms of trade and overall net external position.

Dr Atuahene said this could be achieved by diversifying the economy and making more investments in the non-cocoa sector, as well as, aggressively tracing, tracking, capturing, and monitoring foreign remittances in the country.

The banking consultant, who was speaking at the Ghana National Chamber of Commerce and Industry (GNCCI) Dialogue Series, said whenever Ghana’s fiscal and monetary policies were relatively loose, the exchange rate tended to experience large depreciations.

The dialogue was on the theme: “Navigating the rapid depreciation of the Ghana Cedi: Surviving in the Midst of the Crisis.”

He said in the short to medium term the government must have selective import substitution and restrictions must be introduced to mitigate the depreciation of the local currency. 

He said the central feature of Ghana’s exchange rate stability must be accompanied and supported by a tightening of demand management policies, notably through a reduction of fiscal deficits which had bedevilled the economy over the past decade.

The government and Bank of Ghana must track, trace, and capture foreign remittances, including those being captured by new money transfer companies and newly authorized fintech companies licensed by the Bank of Ghana under the Payment Systems and Services Act 2019 Act 987 in contravention to Foreign Exchange Act 2006 Act 723.

He said the government through the Attorney General could initiate negotiations with the existing mining companies to up the surrendering portion of 13.5 per cent to 25-30 per cent based on the Botswana Model with Anglo-American De Beers in the short to medium term.

The long-term solution is for the country to diversify rice, maize, onion, tomatoes, soya beans, and cashews, adding value to its exports.

He said the country should also increase local production, and cut down on imports so that there would be enough foreign exchange in the country.

He said the government’s policy of modernizing agriculture and creating an enabling business environment for the private sector to speed up the process of agriculture industrialization required investment and incentives to improve economic infrastructure, reduce business costs and regulatory barriers, and develop new export growth poles.

Dr. Clement Osei Amoako, President of GNCCI, said the forum aimed to facilitate discussions on strategies to mitigate the adverse impact of the rapid depreciation of the cedi on business operations. 

He urged the government to treat the depreciation of the local currency as an emergency and expedite efforts to stabilize it and clamp down on speculation.

This includes negotiating with external creditors under the IMF programme for the disbursement of the third tranche of the credit facility.

He said as of March 2024, the cedi was identified as the third worst-performing currency on the continent, according to Bloomberg’s report.

He said in the first quarter of 2024, the cedi experienced an average depreciation of approximately 8.8 per cent against major trading currencies and in the initial five months of the year, it depreciated by 17.7 per cent.

The Chamber called on the Bank of Ghana to intensify its efforts to improve market conduct and instil sanity in the foreign exchange market.

He said individuals who were hoarding the forex were also encouraged to desist and help slow down the rate of depreciation.

“The Chamber also called on citizens to begin to look within for the consumption of domestically produced goods and services to support the long-term stabilization of the local currency,” he added.

The Chamber assured the business community that it would continue its advocacy and collaboration with the government and other relevant stakeholders to ensure that the interest of the private sector was protected and promoted.