The cedi is overvalued - Prof

Professor Cletus K. Dordunoo, an economic consultant, on Friday described the cedi as "highly overvalued", saying it is destroying the manufacturing and industrial capacity and potential of the country.

He said the situation if not addressed adequately and in time, would lead to a nation of idle entrepreneurs resulting in the loss of numerous jobs.

The impact of this on the economy, "we may not be able to measure", he added, at a Forum on the Ghanaian Economy and the launch of the maiden publication of The Ghana Economic Forecasts and Analysis (GEFA) by CLAYDORD Consult an economic consulting firm in Accra.

"No wonder Ghana's trade deficit worsened and the real effective exchange rate appreciated last year.

"When you allow your currency to remain at the same point, vis-?-vis your trade partners', people who manufacture goods, pay domestic rising factor prices which make your goods too expensive for consumers.

"This chokes the exporting manufacturer because, technically the government is subsidizing goods coming into the country."

Giving an overview of the Ghanaian economy in 2000 and 2001, Prof Dordunoo said the annual average inflation accelerated to 32.9 percent last year from 25.2 percent in 2000 while the nominal rate of depreciation of the cedi against the dollar in the inter-bank level fell from 49.6 percent in 2000 to 3.7 per cent in 2001.

"In the bureau market, however, the exchange rate depreciated by 7.7 per cent in 2001 compared with 49.8 percent in the previous year.

"Thus while in 2000 the rates of depreciation were almost the same in both the inter-bank and bureau markets, in 2001, the depreciation in the bureau was more than twice that at the inter-bank market."

The parallel market showed a wider premium of about 10 percent last December.

He said the re-emergence of the margin indicates partially the overvaluation of the currency in the inter-bank market.

Prof Dordunoo said globalisation continues to increase inter-dependence in the world. But while some countries are benefiting, it hurts some especially poor ones.

He said key developments in the world that have implications for the performance of Africa and Ghana include the International Conference on Financing Development, Strengthening the Heavily Indebted Poor Countries (HPIC)Initiative, NEPAD and the AGOA.

"But Ghana's ability to use these new opportunities in the short term depends on how it can benefit from such initiatives, such as the Integrated Framework for Trade Related Assistance to least developed countries, which aim at addressing supply side domestic trade policy limitations."

Prof. Dordunoo said Ghana's overall aggregate expenditure has been stable in recent times with the private sector consumption and household expenditure averaging 74.45 percent of GDP from 1998 to 2001, and government consumption recording 11.94 percent bringing the total average propensity to consume to 86.4 percent.

Gross investment averaged 22.24 per cent of GDP over the same period. The 2002 projections reveal a very small reduction in private and government expenditures, estimated at 74.0 per cent and 11.14 per cent of GDP respectively.

Gross investment is projected to increase from 23.0 per cent in 2001 to 23.5 per cent of GDP this year indicating an external resource gap of 8.63 per cent of GDP or 649.03 billion cedis at 1993 constant prices.

Prof. Dordunoo said from the provisional estimates in the budget, the real GDP growth of 3.7 percent in 2000 improved to 4.2 percent last year as against a target of 4 percent.

Agricultural GDP exceeded the target of 3.7 percent by 0.3 percentage points. However, the performance of the industrial sector was below target; it was projected at 4.0 per cent but grew only by 2.9 per cent reflecting the myriad of difficulties confronting the sector, such as labour unrests and strike actions, high cost of credit, instability in the supply of inputs such raw materials and spare parts and higher tariffs on utilities.