Cedi records highest exchange rate loss in Africa
The World Bank has unveiled a disconcerting economic scenario in Africa, with Ghana at the epicenter of fiscal turbulence. Data released by the World Bank highlights Ghana’s exchange rate woes, which saw its currency, the cedi, tumble by nearly 40% between January 1, 2022, and January 1, 2023. This sharp devaluation has led to the cedi experiencing the most pronounced currency depreciation on the continent during this period.
The World Bank’s findings elucidate a broader trend in the region, where exchange rates have predominantly veered toward depreciation. This adverse trend has ushered in an era of soaring prices for imported goods, encompassing essential commodities such as food and energy, burdening both consumers and policymakers alike.
Of particular concern is the spotlight cast upon countries like Ghana that have adopted “crawl-like arrangements” in their exchange rate policies. These arrangements, designed to effectuate gradual depreciation, instead presided over precipitous currency devaluation. This depreciation is chiefly attributed to the adoption of costly fiscal measures intended to curtail the pass-through of exchange rate fluctuations to inflation. Consequently, these measures have led to a deterioration in the fiscal position, further straining exchange controls, and exacerbating inflationary pressures.
A pivotal concern with managed and crawl-like exchange rate arrangements lies in the potential for parallel markets to exert influence over exchange rate dynamics. The imposition of capital controls has been known to exacerbate the scarcity of foreign exchange reserves, compelling governments to prioritize specific transactions and levy premiums on official foreign exchange dealings.
Ghana’s woes were surpassed only by Sudan, which grappled with a substantial 23% depreciation of its currency over the same period. Other African nations also faced currency devaluation, with Malawi (-20%), The Gambia (-16%), and Madagascar (-10%) following in the rankings.
Fitch Solutions’ Cedi Projections for 2023 and Beyond
Amidst this backdrop of currency turmoil, Fitch Solutions has offered insight into the trajectory of the Ghanaian cedi. The firm now anticipates the cedi will conclude 2023 at GHS 11.40 against the US dollar, a revision downward from their earlier projection of GHS 12.40.
Looking ahead, Fitch Solutions foresees a further strengthening of the cedi in 2024, predicting an exchange rate of GHS 10.90 to one US dollar. This optimism is underpinned by the anticipated inflows stemming from the IMF program and bolstered investor confidence in the Ghanaian economic landscape.
As Ghana navigates these challenging economic waters, its exchange rate dynamics remain under the scrutiny of international observers, casting a long shadow over its economic prospects for the foreseeable future.
