Bawumia explains cedi’s 18.2%YTD depreciation against dollar
The Vice President Dr Mahamudu Bawumia has explained why the cedi, has depreciated by over 18 percentage points against the US dollar in the first quarter of this year.
Giving a lecture on the state of the economy at the Tescon National Conference, Dr Bawumia attributed the fast depreciation of the cedi to a number of factors, notable among the factors were the unfavourable market assessment of government’s 2022 budget and its inability to achieve the set 42% increment in revenue mobilisation, struggle to have the E-Levy passed and the downgrading of the country’s sovereign credit rating.
“The reasons for the fast depreciation of the cedi was due to the financial market assessment of the 2022 budget revenue projection of 42% will not materialise and so the set fiscal deficit will not be achieved.
“The impasse on the E-Levy in Parliament also did not help as investors were of the view that government will not be able to get the E-Levy passed, also the perception of late passage of major fiscal reforms such as the benchmark values, tax exemption bill, the review of fees and charges as well as the common platform for property tax, appeared to support the notion that government will have difficulty in passing its programmes for the year.
“Then was the downgrading of the country’s credit ratings by Fitch and Moody’s and this resulted in the unwillingness of foreigners to rollover maturing bond investments and demand for foreign exchange and exit the market.
“Also, the lack of access to the international market and government’s decision to not issue a Eurobond in 2022 did not help matters as investors wanted their foreign exchange now resulting in the high demand for the dollar and the resultant depreciation of the cedi.
“Lastly, the hike in policy rate by the Federal Reserve and the Russia-Ukraine war also contributed to the depreciation of the cedi. So basically, the depreciation of the depreciation of the cedi was simply about the market assessment of the fiscal stance of government and its implications for fiscal and debt sustainability, this was the primary factor underpinning the ratings downgrading and the cedi depreciation,” the Vice President argued.
The cedi, according to Bloomberg, ended the first quarter of 2022 with a depreciation rate of 18.21% rate to the US dollar.
The local currency depreciation rate, Bloomberg asserts, still makes it one of the African currencies with the worst spot returns.
The cedi came under severe pressure, particularly in the months of February 2022 and early March 2022. This was largely as a result of immense demand for the US dollar, as investors seek for dollar denominated assets, due to unfavorable ratings of Ghana’s economic outlook by rating agencies, Fitch and Moody’s.
And despite the country benefiting immensely from the high price of crude oil on the international market and to some extent the favorable price of gold, the cedi has not fared well so far this year.
Also government had faced stiff opposition in getting some revenue bills, particularly the Electronic Transaction Levy, from getting passed. Similarly, investors wanted some reassurance by government that it was committed to narrowing the fiscal deficit, whilst reducing arrears and the rising debt.
