Economic strains linked to high exchange rates – ISSER

The Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana has linked rising labour agitations, high business costs, and the collapse of some businesses to soaring foreign exchange rates and persistent inflation.

According to ISSER's assessment of the recent mid-year budget review presented by Finance Minister Dr. Mohammed Amin Adam, the cedi has experienced significant depreciation against major foreign currencies.

In the first half of 2024, the cedi depreciated by 18.6 per cent against the US Dollar, 17.9 per cent against the Pound Sterling, and 16.0 per cent against the Euro.

This follows a 27.8 per cent depreciation against the Dollar, 31.9 per cent against the Pound, and 30.3 per cent against the Euro in 2023, and a 30.0 per cent depreciation against the Dollar, 21.2 per cent against the Pound, and 25.3 per cent against the Euro in 2022.

“This suggests some stabilization of the exchange rate over the past three years,” the report stated.

However, the cedi was generally more volatile against major foreign currencies in the first half of 2024 compared to the same period last year.

Despite this volatility, the cumulative depreciation rates were relatively lower, but ISSER urged the government to take additional measures to curb the cedi’s depreciation.

The report recommended that the government reduce the rate of cedi depreciation, boost exports to lessen foreign exchange demand, and enforce stricter forex regulations.

“It also recommended that the central bank increase its presence in the exchange rate market,” ISSER added.

On inflation, the Institute noted that June 2024 inflation had decreased to 22.8 per cent, a significant drop from the peak of 54.6 per cent in December 2022.

Despite this reduction, the figure remains high compared to the 12.6 per cent inflation rate in December 2021.

ISSER urged the government to address the commodities driving inflation and consider improving infrastructure in key food-producing areas to reduce transportation and fuel costs.

“For instance, enhancing the road network in areas designated as the food basket of Ghana and reducing foreign exchange rates can help lower transportation and fuel costs, subsequently reducing both food and non-food inflation to single digits,” the report concluded.