Aggressive cuts in government expenditure can address cedi depreciation – Prof Baah
Economist, Prof William Baah Boateng, is advocating for more aggressive cuts in governments expenditure to address the sharp depreciation of the cedi.
The local currency has experienced some series of depreciation within the first two months of this year with fears of a worsening situation if tougher measures are not implemented to improve the fiscal economy.
Speaking in an interview, Prof Baah, indicated that one of the surest way to restore investor confidence is to rationalize expenditure.
“The first thing to be done is government trying to demonstrate that they are committed, there are challenges and therefore government is committed to bring down the expenditure on their side. I am expecting a statement like that from the president or minister of finance trying to tell ministries not to buy any vehicles. I mean, social interventions that government rolled out in 2017 are very good. I think it is about high time government rethink about some of these social interventions.
“Maybe it is difficult to mention free senior high school, I think government needs to review that. I’m sure some of them, you may not consider them to be popular, I think it is important we meet investors to see that government is committed to reducing its expenditure and then government is committed to increasing its revenue, and they know that well, if we have our money with this government, we know that they can pay in the future and they will not rush to withdraw funds,’’ he said.
Chief Finance Officer of the Valley View University, Dr. Williams Peprah, has urged the Bank of Ghana to increase interest rates in the country to help stop the recent continuous depreciation of the cedi.
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The local currency begun the year trading at about ¢6.40 to the dollar but with just two months into the year it has reached ¢7.15.
He noted that the increasing interest yield will entice investors to purchase more government securities and help slowdown the depreciation of the cedi, despite the difficulty it will bring to the economy.
“When a country’s currency is suffering from devaluation, as we have experienced in Ghana in the first 2 months of the year, where we have the worst performing currency, the only alternative to stop the devaluation is from increasing interest rates in the country”.
“What it means is that instead of investors or citizenry not having confidence in the currency but to purchase dollars or foreign currency for savings, government will entice them with an increase in interest rates, so that they will purchase government bonds and government securities”, Dr. Peprah pointed out.
According to him, it is a strategic move to save the cedi.
Dr. Peprah said increasing interest rates at this time is inevitable to save the cedi from further depreciation, adding “it is a major principle of controlling a situation where a country is having exchange rate devaluation.”
However, he said, “the implication is that cost of living, or cost of borrowing will become expensive in the country, and it will slow down the economy for a while, but this is in the best interest to control the wide spread of margin between the forex market and the Bank of Ghana’s exchange rate”.
