Finance minister Dr. Mohammed Amin Adam, has moved to assuage concerns over stability of the cedi, assuring citizens and investors of “robust foreign exchange reserves” with an anticipated disbursement of US$2.32billion within the next six months.
Since end of first quarter this year, the cedi has faced significant pressure – reminiscent of its free fall in the second half of 2022 – and has consequently set off alarm bells, with fears of a recurrence of speculation and the attendant inflationary pressures.
Speaking at the Monthly Press Briefing, Dr. Adam highlighted several measures being undertaken by government to maintain currency stability and avert market uncertainty.
“We therefore expect total disbursements of at least US$2.32billion before end of the year will add to the significant foreign exchange reserves already built up by the BoG,” Dr. Adam stated as he sought to reassure the public and market participants.
“We wish to assure Ghanaians that there is enough foreign exchange supply. Hence, there is no need to rush and buy forex,” he added.
Currency Performance and Pressures
The cedi has been under considerable pressure since end of the first quarter, echoing its sharp decline in the second half of 2022. The situation has stoked fear in some quarters that the local unit could exchange for more than GH¢18 to US$1 before close of the year, especially when pre-Yuletide pressures kick in.
Already, market analysts have stated that the cedi is expected to depreciate further against major currencies like the US dollar in the near-future. This is due to a lack of US dollars in the forex market and high demand from businesses that import goods. The central bank has been trying to support the cedi by selling US dollars, but demand is still outstripping supply.
Analysts predict the cedi could fall to around GH¢15.4-15.6/US$ by end of June 2024. This is because businesses need US dollars to buy goods from abroad and there is not enough supply to meet demand.
At close of the penultimate week, the cedi declined 0.85 percent against the US dollar in the interbank market to GH¢13.80/US$, 1.77 percent against the Euro to GH¢15/Euro and 2.34 percent against the British Pound to GH¢17.53/GBP. In the spot market, the US$/GH¢ pair fell sharply by 3.3 percent week-on-week to GH¢14.35/US$.
However, Dr. Adam pointed to notable progress in stabilising the currency. “But for recent pressures we are seeing on exchange rate movements, the exchange rate has been largely stabilised with depreciation of the cedi against the US dollar halving from 54.2 percent at end-November 2022 to 27.8 percent at end-December 2023,” he noted.
“The cedi’s stability has continued into 2024, with a cumulative depreciation of 14.2 percent as of May 20, 2024, compared to 20.7 percent recorded in the same period of 2023,” he noted.
Dr. Adam attributed the recent pressures on the cedi to several factors including general strengthening of the US$ against major trading currencies, seasonal forex demand, elevated demand from corporate institutions, payments to contractors and Independent Power Producers (IPPs), high cedi liquidity and speculation.
To mitigate these pressures, the Ministry of Finance in collaboration with the Bank of Ghana has rolled out a series of measures. The fiscal consolidation process is being fast-tracked by rationalising spending and enhancing revenue mobilisation, he said.
Government is also intensifying its gold-for-oil programme to support the forex market, and increasing its gold reserves to stabilise the currency, he added.
The finance minister highlighted the expected disbursement of the 3rd tranche under the 2nd review of the IMF-supported PC-PEG after IMF Executive Board approval in June 2024.
Additionally, the disbursement of US$150million from ongoing projects, following parliamentary approval, and an expected US$300 million under the World Bank Development Policy Operations (DPO2) in the third quarter of 2024 are anticipated to bolster the country’s foreign exchange reserves.
Further support is expected from the disbursement of US$200million to Ghana Export-Import Bank (GEXIM) and GCB by ECOWAS Bank for Investment and Development (EBID) later in the year. The anticipated 2024/25 cocoa syndication proceeds, expected in the fourth quarter of 2024, are also projected to strengthen the cedi by boosting forex supply to the markets.
“We expect the cedi’s stability to improve into the medium-term as we complete debt restructuring, make more progress on fiscal consolidation and improve our reserves,” he remarked as he maintained an optimistic tone about the medium-term stability of the cedi.
Discipline needed
An economist with the Institute for Fiscal Studies (IFS), Leslie Dwight Mensah, believes while there are elements of good news, significant fiscal discipline is required for any progress to be actualised.
“The cedi is in sore need of good news. In that context, the announcement of progress toward a final debt settlement with bilateral creditors – which will unlock the IMF’s next disbursement – is pleasing,” he said.
“Unfortunately, however, the cedi’s fate will remain precarious if the surge of imports in 2024 persists at a time when Ghana’s ability to attract significant capital inflows is curtailed,” Mr. Mensah added.
He maintained that the appropriate response is to “maintain strict fiscal and monetary discipline, not yielding to ultimately pernicious political pressures” to deviate from the macroeconomic programme for the year.
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